Rising debt burdens threaten young adults in Singapore
Debt among young adults in Singapore, particularly those belonging to Generation Z and Millennials, is becoming a significant concern according to a recent report by Lendela, a Singapore-based loan matching firm.
Recent studies conducted by Lendela have revealed a noticeable decline in loan application shares from Generation Z and younger Millennials over the past two years, despite these groups still making up nearly half of all current applications. Bryan Tay, Singapore Country Manager at Lendela, stated: "Over the last two years, we've seen a gradual decline in the share of applications coming from Gen Zs (18-27) and younger Millennials (28-35), although the younger cohorts still account for close to half of all loan applications today."
The studies illustrate that while the application shares may be declining, the average loan size requested by young adults continues to increase, indicating escalating financial pressure. Tay commented, "On closer look, we see that despite the decline, the average loan size requested by young adults has been climbing over the past year, suggesting growing financial pressure on young adults who may be dealing with a combination of factors, from inflation and the rising cost of living to raising young kids, housing, and education."
Among the different income groups, Generation Z borrowers predominantly belong to lower-income brackets (under SGD $36,000), whereas Millennials tend to have a broader distribution, majorly concentrated between SGD $36,000 and SGD $72,000. This diversity in income groups highlights varying pressures, especially for middle-income Millennials. A notable rise in loan applications over the past two years is observed among Millennials earning above SGD $48,000 annually, suggesting pressures from expenses related to life stages like mortgages, home renovations, and family planning.
The primary reasons for borrowing among young adults include debt consolidation, bill payments, and home expenses, though differences emerge based on life stages. Education and weddings are among the top borrowing reasons for Generation Z, while credit card debt and renovations are more common for Millennials. The findings suggest that generally, the primary borrows are strongly tied to the escalating cost of living.
Analysis of the Total Debt Service Ratio (TDSR) reveals contrasting trends. While the proportion of Millennials with a favourable TDSR has increased by over 11% in the last two years, Generation Z's shares with both favourable and somewhat favourable TDSR have significantly dropped, by 16% and 38% respectively. The study also identifies a 37% increase in Gen Z with highly unfavourable TDSRs.
Millennial applicants with large existing debts (over SGD $15,000) have also seen a notable rise, now representing nearly a quarter of all young adult applications. This is coupled with a general decline in credit management skills among Generation Z.
Tay emphasised the importance of maintaining a healthy credit profile for young borrowers' long-term financial stability, saying, "While credit options need to remain accessible in a high-cost environment and to young adults who need them, it's incredibly important for the long term financial health of younger borrowers that they maintain a healthy credit profile. This involves paying on time and in full, as well as how many debt and credit facilities they have, on top of several other indicators, and can significantly influence the financing options available to them, as well as the associated costs."
