Brace yourself for a volatile financial future. If research due to be released on Monday by R3, the association of insolvency professionals, is correct then we could all be in for a white-knuckle ride as more people start to struggle with debt and go bankrupt. And those affected by this are not just the debtors, but the whole of society. Debt can travel through communities like a virus – hitting families who try to bail out their weaker members, destroying relationships, emptying the coffers of businesses affected by bad debts and even lowering the salaries that companies can afford to give their employees.
At first glance, R3's briefing paper, Barriers to Seeking Advice – pre-released exclusively to The Independent – may seem to tell us what many of us already know. It reveals "a clear generational split on attitudes to debt", with younger people far more likely not to open bills and to avoid contact with creditors.
R3's research is based on almost 2,000 people who have debt problems but who have not yet sought help with them. Over a third of 18- to 24-year-olds (36 per cent) and 29 per cent of 25- to 34-year-olds had not looked for help as they felt it was "easier not to think about it". But the figure was much lower for 35-to 44-year-olds (19 per cent) and lower still for older people.
While these results may not be surprising, the implications are still worrying. "It's inevitable that the young are more lax about debt," says Richard Murphy, director of Tax Research UK. "They have got to be to survive. Debt has been institutionalised for them. This is a deliberate ploy by the financial services industry in combination with Government. We should be very worried about it. The problem is not the young people but the capture of the whole idea that debt is good."
In spite of the worldwide financial crisis which was partly triggered by excessive debt, and the prospect of several years of austerity in order to pay down government borrowing, there are many signs that, on the whole, we are not going to change our ways. "I don't know how much we have learnt," says the insolvency practitioner Bev Budsworth, managing director of the Manchester-based company The Debt Advisor.
"Credit institutions are really keen to catch young people. Young people are really coerced into taking out store cards. And store cards are the tipping point for young people. They all have good intentions of clearing the balance but it is very easy to make just the minimum payments. Before you know it, you have accumulated £1,000 in debt," she says.
Going from this level of debt to something unmanageable can be worryingly easy. "It doesn't take much to knock people off course," says R3 president Steven Law, a partner at the Ipswich office of the accountancy firm Ensors. "Debt spirals out of control so quickly when people aren't making payments to cover the monthly interest."
The RSM Tenon Tracker of personal insolvency in England and Wales shows "the fastest-growing age groups being the over-65s and the under-25s", says RSM Tenon's head of bankruptcy, Mark Sands. Under-25s accounted for nearly 5 per cent of all personal insolvencies in the first three months of 2010. Nearly 2,000 people in this age group went in for bankruptcy or another official form of insolvency, up 27 per cent on the year before.
Since people tend to build up debts over a period of several years, these figures would suggest that many of those getting into trouble are as young as 17 or 18 years old. This could be because the cost of going to university can now mean accruing debts of more than £20,000 for people who do not have families to support them. But the role of the banks and other lenders is also raising questions.
For instance, the Government has promised "a new framework that promotes responsible and sustainable banking, where regulators have greater powers to curb unsustainable lending practices". If banks had not lent too freely, there would be no need for such an initiative. The figures from R3, however, suggest that around 2 million adults are in significant financial difficulty – and that would include 100,000 under-25s if the RSM statistics are representative.
A Citizens Advice caseworker, who prefers to remain anonymous, thinks that banks cultivate the young. "Faced with an old person in their forties or a young person in their late teens or early twenties, a bank will always go for the younger person. The bank will offer the younger person more in terms of an overdraft," he says. Young people are more attractive to lenders, he adds, as their longer life expectancy gives them more opportunity to build up debt and to earn. And if they really go off the rails early on, the parents can often be counted on to help pay back the debts.
Banks have also played a major role in something that should be extremely positive, the growth of personal finance education over the last decade. Barclays' Money Skills packages and NatWest's MoneySense for Schools will be well-known to many teenagers. NatWest is very proud of its scheme, saying, for instance: "If you think you might be running into financial difficulty, then MoneySense can help." Mr Murphy takes a different view. "They are teaching people to accept debt. What an absurd scenario that is."
The need for more money education is one of the main themes being promoted by R3. But money education has never been more widely available than in the last six years. In that same period, personal debt has risen nearly 50 per cent across the UK to a total of £1,460bn, according to charity Credit Action, which adds: "Individuals owe more than what the whole country produces in a year."
In the future, as a nation we will be dependent on generations of graduates who will start off their careers with a mountain of debt which, in many cases, will be far more than they earn in a year. We will have to hope that they do keep on paying their debts and do not get downhearted in large numbers.
Maggie Kirkpatrick of the Consumer Credit Counselling Service is not optimistic about the ability of this generation to pay back their debts. "Students leaving university now are finding it harder to get higher-paid employment," she says. She detects amongst them "sheer disappointment at not being able to achieve what they expected". And she hopes that they do not get so disillusioned that they just give up on the debt repayments, but she says: "That might be something that grows in future."
Indeed, young people do have an incentive that older people do not have to give up on repayments. "There is no fear of bankruptcy because they have nothing to lose," says Sands. Few own their own homes; their cars (if they have them) usually cost them very little; they are unlikely to lose their jobs as they are mainly trainees; and they can still work their way round the world if they want.
But if students do keep on course with repaying their debts, Murphy is concerned at the other sacrifices they have to make. "This debt restricts their freedom of choice. They may feel they have got to take the highest-paying jobs," he says.
By the end of June there will be more information available from R3 about the price to society of personal debt. Its geographical analysis of insolvency is expected to show a much higher incidence of bankruptcy in coastal areas than in inner cities. Insolvency appears more likely to happen in zones of low incomes and high unemployment; and, in turn, a higher insolvency rate will slow down the economic growth of an area.
Steven Law of R3 says: "When more people are not spending, it can hardly help a consumer-led recovery." In other words, our own prosperity is tied in with that of our neighbours. And if young people are likely to default on their debts more often in future, that is an issue that concerns us all.
'£20,000 of debt is like a big cloud over your head'
Music graduate Jane (not her real name) would like to do a masters degree. But she says: "It would be impossible." The reason that she cannot go back into study is that she is still carrying £20,000 of debt. Now 25, and working as a teacher of English as a foreign language, she is hoping to pay off her bank and student loans by the age of 30. "Having £20,000 of debt is like having a big cloud over your head."
At the end of each month the graduate usually has several days where she cannot afford to buy anything or go out. If she goes abroad she will earn more.
So Jane is hoping to land a job in Japan, where the salaries are relatively high. Once she clears the loans, she will be able to live her life more naturally and in tune with her true ambitions. "I don't think about the debts much," she says. "What I think about more are the opportunities I don't have. That gets me down." Among her friends at university, some were financially secure as they came from families which could give them some support. Some, such as Jane's, could not afford anything.
She does not agree with any suggestion that young people are particularly irresponsible in either running up debts or repaying them. She says: "If it is completely your responsibility and you see a quarter of your income eaten away each month then you can't be flippant about your debts."