Experiences of Young People’s Borrowing

• Context
• The study
• Key findings
• Points to consider

Context

This study aims to better understand young people’s (aged 18-24 years old) experience of borrowing in the UK. The research explored young people’s use of unsecured credit to understand why they borrow, what motivates their borrowing, and how young people’s financial well-being can be better supported to help them transition to independence. This matters because young people have experienced the greatest reduction in financial well-being since the Covid-19 pandemic compared to other age groups. Young people are at the start of their financial lives and are making complex decisions about borrowing and their use of credit. This is an important point in their journey to financial independence as they will be developing their experience and capability with little or no credit history. The decisions they make around credit use will have significant implications on their current and future financial well-being. This report is particularly relevant as credit and borrowing have become even more important in the cost-of-living crisis.

The study

The research had three phases. Phase one involved 80 in-depth online interviews conducted between September and October 2022. This was as part of an exploratory study aimed at capturing a diverse range of borrowing experiences and their impact on young people’s financial well-being. Interviews lasted an average of 20 minutes, exploring different financial behaviours related to credit usage among various groups, including factors like gender and ethnicity. Phase two of the research comprised the analysis of the interview data. Phase three included two online non-technical hackathons which involved participants who took part in the interviews and subject experts (steering group members). The hackathon aimed to collaboratively devise viable solutions to support young people aged 18-24 in building their financial well-being.

The study was conducted by the Centre for Business in Society (CBiS) at Coventry University and supported by the abrdn Financial Fairness Trust.

Key findings

• Credit and borrowing is an essential part of young people’s everyday life, due to a broader normalisation of credit in society.
• Young people’s experience of credit, both good and bad, can influence how they manage their money and their relationship with it, so it is key that young people get the best out of credit, and are protected from avoidable pitfalls
• Young people use credit to manage their financial well-being and also to invest in their future by getting a credit card to build their credit score.
• Whilst some were motivated to borrow for convenience, essential needs, or used credit for one-off purchases, many saw that via credit they were also investing in their financial future either through going to university or building a good credit history to secure a mortgage in the future.
• More concerning was that around one in five of the 80 interview participants in our study did not think of certain credit products as a form of credit - this invisibility of credit is problematic.
• Young people did not always know where to go for support online which meant that some found it difficult to always make good financial decisions.
• Close to two-thirds of interviewees felt that money and credit were taboo subjects, impacting their sense of permission to discuss and learn about debt and finance
• The experience of money whilst growing up also influenced young people’s perceptions and use of credit.
• Young people identified the role and responsibility of financial services and FinTech to help them feel in control of their money and support their financial well-being
• Many young people used the pandemic as an opportunity to rectify their credit
• The research identified clear intersections between why young people use credit (financial need), the emotional effects of credit use, and the risk of detrimental impact on young people’s mental health.

Points to consider

• Methodological strengths/weaknesses: The report notes that the research was not designed to be representative of the UK population given the focus on young people and the small sample size. However, the participants involved represented a broad range of young individuals aged 18-24 who had utilised at least one formal credit product. The authors also note that there was a diverse mix of participants across gender, age, marital status, dependents, income, occupation, ethnicity, disability, UK region, and housing status, avoiding over-representation in any specific area.
• Applicability: The report will be of interest to government, policy makers and regulators and support groups working with young people, as well as to young people themselves and their families.
• Relevance: The report is highly relevant as the cost-of-living crisis makes it more likely that young people will use credit and get into debt.
• Generalisability: The report is exploratory rather than representative but the focus on including a wide variety of young people makes it more likely that the findings can be applied to young people in the UK as a whole and the insights are likely to be relevant in other markets.