Easy credit Lured in, can't get out

Peer pressure leads under-35s to spend on travel and entertainment

Easy credit is sending more young people in over their heads.

Last year, non-profit company Credit Counselling Singapore (CCS) counselled 595 people under the age of 35 struggling with consumer debt.

The number is more than four times the 140 people - in the same age range - recorded in 2004.

Younger Singaporeans are typically ignorant and unsure about how a credit company works in terms of charging interest, points out a spokesman from commercial debt advising company SG Debtbuster.

Financial consultant Alex Wong, who has been in the line for the past six years, says: "People don't see that the 2 per cent stated is actually on top of another 2 per cent, and at the end you get 24 per cent per annum."

Their comments resonate with other statistics from the credit bureau which show that a larger number of younger Singaporeans are spending more, and struggling to pay their credit card bills on time.

And the problems seem to be hitting those aged 30 to 34 the hardest.

  • Last year, they spent an average of $4,523 on credit cards. This was just $3,787 in 2009.
  • They also had the highest increase in delinquency rates (meaning they owed money for 30 or more days on their cards) among the age groups. Last year, 17.5 per cent of Singaporeans in this age group were delinquent.

This was 15.7 per cent in 2009.

The biggest reason people get into debt is lifestyle spending, says CCS general manager Tan Huey Min.

Says Ms Tan: "Over time, people get used to a certain standard of living that makes it difficult for them to scale back on their spending (and resolve the debt)."

For young people, peer pressure can be the greatest stumbling block.

"They normally hang out with those who share the same lifestyle and interests as them," she says.

Adds Mr Wong: "It is typically due to overspending on areas such as dining, travel and entertainment."

Mr Wong's clients are mostly under the age of 35.

Debt may compound if they cannot cut out the activities or spending habits which in the first place, led to the problem, Ms Tan says.

The financial picture is not pretty when it comes to young people and their savings either.

An informal survey of 100 people conducted by The New Paper on Sunday showed that fewer than half of the respondents have six months of their salaries saved up.

Many cited poor spending habits and living expenses as reasons for their inability to save.

In addition, a whopping 81 per cent indicated that they were worried about saving enough for their future.

Says financial consultant Edwin Siew, who advises his clients to have three to six months worth of their expenses saved: "Those who are under 35 may have to spend on big-ticket items such as a wedding, down payment for housing or a car.

"These are reasons why it may be a challenge for them to maintain that amount."

Still Mr Wong points out that it is important for people to maintain a fund that can tide them through hard times.

"Even if you have insurance and are able to make a claim successfully, it takes time for the entire process to be completed.

"Having this buffer fund also gives you ample time to look for a new job, should you lose it," he says.