Australian Millennials taking on uncomfortable levels of debt: Experian research
Sydney, Australia, 10 November 2016 –Young Australians have become the most in-debited portion of the community with more than half willing to take on uncomfortable levels of debt andtwice as many relying on credit to fund their lifestyles than older generations, new research released today by Australian credit bureau and data insights company, Experian, has found.
The State of the Credit Nation report, which analysed how fifteen hundred Australians are managing credit and debt, showed Millennials (age 34 or under) are the most credit dependent demographic, have significantly higher debt levels and are experiencing the most financial stress.
“On average, Millennials with a mortgage, credit card or personal loan are $428,000 in debt, owing $146,000 more to credit providers than the average GenX and Baby Boomer,” David Grafton, Managing Director Credit Services and Decision Analytics at Experian said.
“In the last 12 months, Millennials have applied for more than twice as many credit cards, mortgages and personal loans as the average GenX or Baby Boomer and not surprisingly were also the most likely to be declined in their credit applications. Our research found one driver of this trend could be a desire to meet societal and social expectations while trying to build wealth in a market of escalating house prices and stagnant income growth.”
The study found Millennials (17%) are around twice as likely as the average GenX or Baby Boomer (10.5%) to believe they ‘can’t maintain their lifestyle’ without borrowing or that they ‘would not have any quality of life’ without borrowing (18%) compared to the average Baby Boomer and GenX (8%).
Millennial’s were also far more willing to use credit even if they could not comfortably make the repayments, with 44 per cent saying they would only go into debt if they believed they could service the debt ‘comfortably’, compared to 71 per cent of Baby Boomers and 55 per cent of GenX.
“With 4.9 million Millennial Australians making up the largest segment of the population, the findings raise an important question for lenders: Is this the new norm?” Grafton said.
“If the next generation of borrowers are more reliant on credit to achieve their lifestyle and home ownership goals, credit providers will need to find the right balance with responsible lending practices to avoid putting their customers at risk of default and greater financial pressure.”
A recent analysis of Experian’s Credit Bureau data found in the last two years there has been a 21.4 per cent increase in the number of Australians taking on levels of credit they’re unable to service.
“Through Experian’s Credit Bureau data, we’ve seen the level of bankruptcies, defaults and court judgements across Australia rise at a rate not seen since the GFC,” Grafton said. “Our new research shows a large number of Australians are experiencing challenges when it comes to servicing debt, with Millennials displaying a markedly different attitude to credit than the generations before them.”
Experian’s State of the Credit Nation research found in the past 12 months:
- 22 per cent of Australian Millennials had been unable to make a mortgage repayment, which is twice as many as the overall market average (11%).
- 55 per cent of Millennial mortgage holders had reduced spending on “essential items”, 38 per cent had worked additional hours or a second job and 33 per cent had borrowed from friends or family to ensure they could service their debts and commitments
- One in four Millennial and GenX mortgage holders (26%) are extremely concerned about their ability to make mortgage repayments if their interest rate increased by 1.5%
- Millennials (21%) were three times more likely to use one type of credit product to pay off another, compared to the average GenX and Baby boomer (6.5%)
Grafton said multiple credit applications over a short period of time can be seen as a warning sign of taking on excessive levels of debt.
“The growing trend of balance transfers between credit products is further evidence of how Millennials are relying on loans and credit to fund their lifestyle or in many cases, just keep their head above water,” Grafton said.
“It might come as a surprise to many Australians that under our current system, credit providers have little visibility of how indebted a borrower is. All they can see is the number of credit applications made, when a person is declined or if they ultimately succumb to defaulting on a loan.”
“Experian has actively encouraged a shift to comprehensive credit reporting in Australia to ensure credit providers have access to the positive data needed to give them a 360-degree view of their customer’s financial situation. Better visibility assists better decision making that ultimately benefits customers and institutions alike in finding the right level of sustainable debt for both parties.
Grafton said Australians need to build in contingencies and incorporate a variety of elements into their financial plans, including how lenders assess their risk using a consumer credit report. Credit profiles are available free of charge from websites like creditsavvy.com.au which help consumers access and track their Experian credit score and credit file information.
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