Figures Show Sharp Rise in Insolvency Among Young Adults
July 31, 2019
Personal insolvency rates have increased over the course of the past year and particularly among younger generations of UK consumers.
Official figures from the Insolvency Service show that there were almost 31,000 people who entered a form of personal insolvency between April and June of this year, which represents a 7.2 per cent rise as compared with the same period last year.
The accountancy firm RSM has taken a closer look at the Insolvency Service’s latest numbers and established that there has been a strikingly sharp rise in young people experiencing problem debt.
RSM says that three years ago people aged under 25 only accounted for around 1 per cent of all personal insolvency cases but now that proportion is up as high as 6.5 per cent.
The suggestion from Alec Pillmoor, a partner at the accountancy firm, is that younger generations of consumers are often being attracted to seemingly low-cost credit offers that ultimately prove to be very bad for their financial wellbeing.
“In this climate of low interest rates and relatively easy access to credit, it is entirely feasible that young people without financial experience or literacy may be more susceptible to the temptations of easy money,” said Mr Pillmoor.
“Furthermore, debt charities have also raised concerns about the rise in sub-prime credit cards being targeted at those with low credit scores.
“These can have relatively high APRs when compared to other short-term credit alternatives and serve to further the plight of those with limited understanding of how easy it is to rack up unsustainable debt.”
Among the various forms of insolvency or debt solutions available to UK consumers, the most commonly used at present are Individual Voluntary Arrangements (IVAs), followed by debt relief orders (DROs) and bankruptcy.
According to the Insolvency Service’s latest figures, there were just less than 20,000 people who entered IVAs in the second quarter of this year, 6,752 people who entered DROs and 4,228 people who officially declared bankruptcy.
The 7.2 per cent rise in insolvency rates between last year’s second quarter and this year’s is put down by Mr Pillmoor from RSM to an underestimation among many consumers about their abilities to keep pace with repayments they commit to making.