Gen Y rack up $428,000 debt - but not for a home loan

Friday 11 November 2016

Article by Kelly Emmerton

In the next installment of the smashed avo saga, research from the Experian credit bureau has revealed that Gen Y is racking up more debt than they can handle. Not only are young Aussies spending frivolously, it seems, they’re also using credit unwisely.

Gen Y rack up $428,000 debt - but not for a home loan

The research found that Gen Y Aussies applied for twice as many credit cards, home loans and personal loans as older spenders. More than half Gen Y shoppers admitted they would use credit even knowing they couldn’t comfortably meet repayments, and they were also twice as likely as older borrowers to have missed a repayment in the last year.

On average, Gen Y Aussies have a debt of $428,000 hanging over them - $146,000 more than their seniors.

Head of credit services and decision analytics at Experian, David Grafton, told news.com.au that, “There’s some concern about millenials’ attitudes to risk taking.”

“It’s not just that they seem to be taking out quite a lot of credit, but the research findings suggest that they are less concerned about their ability to repay what they’ve borrowed, compared to the Gen Xs and the Baby Boomers.”

This attitude to risk contributed to a 20% rise in home loan defaults for Gen Y borrowers over the last two years — “a rate not seen since the GFC.”

Bernard Salt recently penned an article suggesting that millennials penchant for smashed avo and expensive cafe brunches may be keeping them out of the property market. It’s to this exclusion from a market characterised by sharply rising prices, that Grafton partly attributes Gen Y’s blasé attitude to debt.

RELATED: ME Bank Life&Loan tool helps millennials buy property and eat avo

“If you become a homeowner, when that happens you tend to be a little more responsible,” he said. He suggested that the commitment required to pay off a large sum of money over a period of up to 30 years was a rite of passage that spurred young Aussies into financial responsibility.

Grafton said “there may be a sort of ‘live for today’ mentality” - not surprising when millennials literally can not save a 10% deposit in the Sydney or Melbourne market.

Unfortunately, an irresponsible approach to credit early in life may set Gen Y borrowers up for more financial trouble in the future. Every credit application - successful or not - can lead to a mark on a borrower's credit history, that may make securing a cost-effective home loan even more difficult.

“So have a look at your credit score, exercise your right to get your free credit report and manage your credit score because it’s your long term interest to do so,” Grafton advised.

Gen Y shoppers looking to minimise the damage their credit card does to their savings should check out Mozo’s low interest credit card comparison, or take the first step toward paying off debt with a great balance transfer deal or debt consolidation loan.

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