Young Australians going bankrupt in record numbers

YOUNG adults are going bankrupt at a record rate due to an explosion in easy access to credit. But while it may clear debts, there can be nasty consequences.

YOUNG adults are going bankrupt at a record rate.

An explosion in easy access to credit, online services and buy-now-pay-later schemes is causing snowballing debts among young people. Many don’t realise that a bankruptcy leaves a permanent black mark and could stop them travelling overseas.

A new analysis by credit agency illion has found that there were 784 bankruptcies for 18-to-24 year olds in the September quarter, up from 123 just four years ago. In most states, young bankruptcies are five times higher than they were in 2014.

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The CEO of illion, Simon Bligh, said many young people had little or no significant assets to lose, so there were fewer incentives to avoid bankruptcy.

“More people are accessing credit at a younger age, entering financially binding contracts for digital subscription services to access music, movies, TV shows, online shopping and gaming accounts,” he said.

Bills are piling up for young people, sending record numbers of 18-24 year olds bankrupt.

“Financial literacy among the young is poor, which is a key factor behind debts snowballing to the point where they become insurmountable.”

The analysis found that the 18-to-24 age group was the only bracket where women outnumbered men for bankruptcies. Overall bankruptcies for all Australians in the three months to September 30 totalled 7400, down 9.5 per cent.

Mr Bligh said conditions of bankruptcy included:

• Bankrupts needed to request written permission from their trustee before heading overseas.

• They might have to make compulsory payments when wages exceeded a certain amount.

• People’s names permanently appearedon the National Personal Insolvency Index public register.

Bankruptcies also appear on people’s credit file for at least five years, affecting their ability to borrow money.

MyBudget director Tammy Barton said it was easier than ever for young people to get caught up in unmanageable debt, and many didn’t appreciate debt “until they get bitten”.

She said bankruptcy might provide the opportunity for a fresh start but was just one of many options to deal with debt.

“Most people can actually pay their way out of debt without going into bankruptcy or taking out new loans,” she said.

“Interest Free Credit Products that you can buy now and pay later in instalments are also on the rise and are causing a big impact to young people.”

Mobile phone plans also came with pitfalls and telecommunications companies were quick to put a black mark on people’s credit files, Ms Barton said.

Personal finance specialist David Rankin said while young people were very tech savvy, modern financial technologies were working against them.

“Five or 10 years ago we didn’t have Afterpay and digital wallets, mobile phone banking didn’t exist, and all of this stuff is hitting young people,” he said.

“They leave school and they leave home and I don’t think they’re prepared for it, because they haven’t had to manage their own finances yet.”

Mr Rankin said bankruptcy should be the “absolute last option” and only after people had tried budgeting, family help, financial counselling and hardship applications with banks and other lenders.

@keanemoney

AVOID BANKRUPTCY

•Talk to your creditors and don’t hide from their letters and phone calls.

•Ignoring financial obligations is the worst thing you can do.

•Ask for help from friends, financial counsellors or independent advisers.

•Create a personal budget. There are many free online versions.

•Work out a repayment schedule with creditors.

Source: illion, MyBudget