Why are under-25s the fastest-growing age group for personal insolvencies?

Despite near full employment and continuing low interests rates, the level of personal insolvencies remains at its highest for almost a decade, according to the Insolvency Service.

Figures published by the Service at the end of July showed that while Q2 2019 was the second consecutive quarterly decrease from the eight-year high at the end of 2018, each of the last three quarters was still the highest for personal insolvency since Q4 2010.

Between April and June this year, 30,936 individuals entered either bankruptcy (4,228), a debt relief order (6,752) or an individual voluntary arrangement or IVA (19,956). Those figures in themselves may not be a cause for concern; bankruptcies are still at a much lower level than in 2009-2014, and the higher level of IVAs could be argued to demonstrate both better access to structured debt recovery processes, and a greater willingness for people to tackle debt issues before they reach the stage where bankruptcy is the only option.

However, while the headline figures shouldn’t be overly worrying, recently published research highlighting a significant rise in the number of young people entering personal insolvency may be more troubling.

The research, carried out by R3 (the trade body representing the UK’s insolvency practitioners), found that the number of personal insolvency cases among under-25s rose by 104% between 2015 and 2018, while the total number of cases among all age groups rose by 45% over the same period. The rate of personal insolvencies among 18-24 year-olds showed a similar trend, more than doubling from 6.4 per 10,000 in 2015, to 13.3 in 2018.

Young people just starting out on their adult lives aren’t normally an age group linked with the issue of unmanageable debt, so what’s behind these big increases? R3 pointed to a number of contributing factors, including:

• Young people building their careers are more likely to be employed on zero-hours contracts and at lower pay rates than other age groups, leaving them with less financial security and flexibility.
• Previous R3 research highlighted the poor financial education many young people receive, with a third (32%) of British adults aged 18-24 saying they had no financial advice through school or university, and of those who did, only one in 10 rating the advice as useful.
• By contrast, the same age group are very internet literate, meaning they find it easy to access online loans and credit facilities, and also turn to search engines when struggling with debt, many of which will point them in the direction of IVAs – the fastest growing personal insolvency step for this age group, up by 235% in numbers and 244% in rates between 2015 and 2018.

The growth in the number of young people opting for personal insolvency measures does need to be put into context. R3 states that the number of personal insolvency cases among under-25s rose from 3,318 in 2015 to 6,773 in 2018, representing just 6% of the total number of personal insolvencies (up from 80,188 to 116,407), although the age group is a growing proportion of the overall level.

But the fact that the rate of increase among 18-24 year-olds is faster than any other age group needs to be noted, especially if internet-savvy but financially uneducated under-25s are entering into personal insolvency measures that may not be the best route for their particular situation.

As always, the key to taking the right steps to deal with your debts is to seek professional advice as early as possible.

This post was written by Stuart Morton, Licensed Insolvency Practitioner at Price Bailey. If you would like more information on this article, please contact Stuart using the form below.