Martin Lee @ Sg
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Higher Bad Debts Among the Young

An article in the Straits Times reported that younger Singaporeans in the 21 to 29-year-old age group have the highest default rate compared to other age groups when it comes to loans.

credit-card-defaultAccording to numbers from DP Credit Bureau, 7.54% of people in the 21 to 29-year-old age group default on their credit card loans compared to the average default rate of 3.88% across all age groups. Of those who do not default, I wonder how many people actually roll over the debt (do not pay in full) and incur the excessive interest rates of credit cards.

A credit card can be a very useful tool if used correctly. If you pay all your credit bills on time, you are essentially getting a free short term credit line. Do it for all your bills every month and it would be like a perpetual free credit line. Not to mention the discounts and credit card points you get.

On the other hand, using it for instant gratification with the intention of paying the minimum payment every month can lead to a snow-balling of debt with devastating effects.

Other kinds of loans such as overdraft, mortgage and motor vehicles also show the same statistical relationship.

A higher default rate means that young people are spending more than what they can really afford. This disturbing trend of “spend what you have not earned” and not having the means to repay them doesn’t bore well for the future.

My friend (belonging to the 21-29 age group) was telling me that she would prefer using cash for making purchases rather than a credit card. Her spending habits usually involves zeroing out her bank account by the end of the month and living paycheck by paycheck.

If she used a credit card for a purchase, she would most likely end up spending the money in the bank (or part of it) that was supposed to be used to pay for the item. So, she will end up spending more. Good thing she knows herself well and hopefully, she will not fall into any debt trap in the future.

For people in this category, having a credit card can be very dangerous indeed.

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4 comments
mikki says 8 years ago

Not only youngters, there are actually women in their 30s & 40s that are spending like there is no tomorrow. These people thinks they are emulating the lifestyles of those characters potrayed in Sex & The City. However, they forgot that these actresses are being paid to do what they do.

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Garrett says 8 years ago

I hope you friend does not really zero out her bank account at the end of every month. Most (if not all) banks charge fees when the balance drops below a certain amount. Don’t give banks your money this way, ensure you maintain at least the min sum to avoid fees.

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    lioninvestor says 8 years ago

    Hi Garrett,

    That is a good point. I will have to remind her on that because unfortunately, that is really the case.

    Reply
solo says 8 years ago

As young people nowadays likes to spend on branded stuff, I am not surprised they will be laden with debt.

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