Personal debt soars among young adults during pandemic

Personal debt among young adults here has been rising during the Covid-19 pandemic, and the situation could worsen once interest rates start to rise.

Credit Bureau Singapore (CBS) data showed that while credit card borrowing showed no significant variation, people in their 20s have been taking on increasing amounts of other debt since the second quarter of last year.

The data showed that the average personal loans and overdraft balances for those under 30 rose by about 23 per cent in the first quarter of this year over the last three months of last year.

The average personal loan and overdraft balances for borrowers from 21 to 29 years old shot up to $49,689 in the first quarter of this year, about 42 per cent higher than the average of $34,941 in the first quarter of last year.

Borrowing limits in Singapore were capped in 2015, helping to keep unsecured debt in check.

The higher debts of late could have been fuelled by low interest rates, said experts.

Associate Professor Yu Yinghui, head of the Master of Finance programme at the Singapore University of Social Sciences, noted that the Government had capped the annual effective interest rate of eligible unsecured personal loans at 8 per cent since April last year, as part of Covid-19 support measures.

But unemployment and lower earnings could also be driving young adults with fewer resources to personal loans and overdrafts as they try to borrow their way out of the crisis, say experts. In March, the unemployment rate of residents aged below 30 was at 6.4 per cent.

Associate professor of finance Song Changcheng from the Lee Kong Chian School of Business, Singapore Management University, said: "If it is due to youth unemployment, it is often transitory. And the Government already has the SGUnited Traineeships programme and other reliefs to help young people and help small firms hire young people."

But it could also be because many are employed on paper but doing part-time jobs or food deliveries that do not pay enough.

Associate Professor Song highlighted the research showing that most workers worked fewer hours or took pay cuts rather than become unemployed last year.

OCBC Bank chief economist Selena Ling said the impact from rising personal debt among younger people would depend on when things turn around.

"If subsequently they can find permanent jobs, then they can pay off the debts. But if the duration is extended, then loan delinquency or default rates may rise," she said.

Assistant professor of finance Ruan Tianyue from the National University of Singapore Business School said that delinquency rates could also rise when interest rates increase.

Currently, the overall delinquency rate is still low for this age group, so it would be hard to say if there is a cause for concern that we might see more bankruptcies among the young, said Assistant Professor Ruan.

CBS data showed that for those under 30, the personal loan delinquency rate - which refers to the percentage of borrowers with payments 30 days or more overdue - had climbed 13.4 per cent in the first quarter of this year compared with the previous three months.

Overdraft delinquency rate was up 12.8 per cent in the same period.

CBS executive director William Lim said: "While we see an increase in credit consumption for mortgage loans, personal loans and overdraft from this younger segment in the first quarter of 2021, we believe it could be attributed to them being more active again following the pandemic-strained 2020 and possibly the higher property prices."

CBS data also showed that mortgage debt for this age group was 2.6 per cent higher in the first quarter of this year than the last three months of last year, while average credit card spending fell 5.6 per cent over the same period.

Correction note: This article has been edited for clarity.