Though £4 billion of the increase came from credit card spending, £9 billion (around 46% of the increase) came from student borrowing, with PwC estimating graduates who started courses after 2012 will owe an average of £40 000 to £50 000. Student loan repayments are linked to salary levels –currently there’s a £21 000 threshold and because many university leavers will never earn graduate salaries, some estimates suggest that up to 40% of this debt will never be fully paid off.
Nevertheless, while these long term debts affect future borrowing potential and the chances of getting a mortgage, a 2014 analysis by Citizens Advice showed more young people turning to pay day lenders to finance their immediate expenditure (this accounted for 62% of the ‘high-interest’ credit used by under 25s) and that 10% of all those with serious debt problems were in the 17-24 age group.
The Citizens Advice report also revealed that 1 in 3 of young people with ‘serious financial problems’ are in work –showing that while youth unemployment may be officially falling, pay and the work that jobs young people do, remain serious issues. The under 25s have suffered most from the economic downturn, with the Institute of Fiscal Studies (press report 04/03/15) showing their incomes are still 7% down. Meanwhile according to a Social Market Foundation Report, 25 to 35 year olds have experienced a 36% drop in savings since 2005. Locked out of the housing market, neither are young people likely to be able to build up any financial equity.
At a more general level, PwC reports the total debt (including mortgage lending) to income ratio now stands at 172%. This is also the highest ever recorded. A future rise in interest rates could have untold implications.