Personal Insolvencies for the UK’s under 25s have risen 20% in just a year, from a total of 4,709 in 2016 to 5,640 individuals in 2017, according to new analysis from Moore Stephens.
Within the under 25s age bracket, women are more likely to become insolvent than men with 3,175 women going insolvent in 2017 in comparison to 2,465 men. Insolvencies amongst women rose 18% in a year, however, the rate of insolvency for young men is rising more quickly, with an increase of 20% in a year.
Moore Stephens explains that increasing student debt levels are a likely contributor to the high levels of insolvencies among young people. The monthly loan repayments lead to a reduction in disposable income and therefore increases the likelihood of young people using more expensive consumer credit to fund their living expenses.
The UK Government currently loans more than £14 billion to approximately 1 million students in England each year. Figures released earlier this year show the average debt among the first major cohort of post-2012 students was £32,000.
The rising cost of housing is also likely to have had an impact on the finances of young people in the UK. On average, people aged between 18 and 36 spend over a third of their post-tax income on rent compared with the 5-10% of income spent by the same age group in the 1960s and 1970s. This leaves them very little to see them through a cash flow crisis such as short-term unemployment.
Rising male insolvencies may in part be due to relatively high unemployment amongst young males and rising expenditure amongst that group. 213,000 men aged between 16-24 classify as NEET (not in education, employment or training) compared to 121,000 women in this category (ONS).
One area of personal debt that has been rising faster among men than women is car loans. The BoE has specifically warned of the rising use of personal contract purchase (PCP) agreements when buying a car. Overall PCP agreements have increased five times since 2008.
Earlier this year the FCA announced a review of car finance after it was reported that approximately 10% of all motorists were struggling with the repayments on their cars, with young people representing a disproportionate amount of this figure.
Jeremy Willmont, Head of Restructuring and Insolvency at Moore Stephens, said “The 20% increase in insolvency rates among the under 25s poses real questions about the financial predicament of many millennials. Young people now tend to be under more pressure to go to university and most will need to take out an expensive loan to pay for their tuition fees. The cost of repaying that debt, combined with an increase in consumer credit overall, means that the under 25s are more likely to become insolvent.”
“There is a concern that this new generation of borrowers, having never experienced a substantial rate rise, will not be budgeting for the potential increased costs of repayments on their loans and car finance deals. As such, there is the risk the number of under 25s becoming bankrupt will increase in the future.”