Credit crisis: Young, gifted and broke

Young Kiwis taking advantage of credit cards and loans are falling deeper into debt. Photo / Christchurch Star

Teens aged as young as 16 are being declared insolvent as the number of people succumbing to debt balloons.

A 16-year-old, three 17-year-olds and 16 18-year-olds were among the 810 people under 25 declared insolvent in the 2009 financial year - more than double the 2005 figure.

Insolvencies, which include bankruptcy and two new alternatives, shot up by 77 per cent overall, from 2986 in the year ending June 30, 2005, to 5292 so far this year.

The most dramatic jumps were in the youngest and oldest age groups. New insolvencies among people aged under 25 rose by 114 per cent to 810.

The figure for those aged 75 and older soared by 153 per cent to 48.

Many of the younger insolvents took advantage of the No Asset Procedure (NAP) scheme, which cancels most debt if it totals no more than $40,000 and the debtor has not previously been bankrupted or used NAP. Less punishing than bankruptcy, it lasts for one year rather than three.

Auckland-based Presbyterian Support budget service manager Maureen Little said some younger people seemed to view NAP as a quick fix.

"The young ones are quite blase about it. They just think it's a process you go through," she said. "The 35-plus ones are a bit ashamed, they're embarrassed and don't feel it's the courageous thing to do."

Little believed the NAP scheme should include compulsory budgeting education.

Generation Y-ers she sees often have relatively well-paid jobs. "They started off with a student loan and low-interest credit cards, and it's just gone from bad to worse."

Some teenagers are given the old family car and then spend more than the car's value on sound systems and mags, using a high-interest loan.

One 20-year-old woman who was granted a NAP had racked up $20,000 in personal loans, car loan and credit card debt. A design student who rented in central Auckland, she got her first credit card when she was aged 17. Her car - "a nana car, nothing flash" - was repossessed.

Otago University senior marketing manager Lisa McNeill is researching the spending habits and attitudes of students. She was not surprised by the insolvency figures.

Many of the fourth year students she interviewed seemed to view credit as "free money, a sort of substitute for parental generosity".

Some had unrealistic expectations of how much they would earn after graduating. Many felt social pressures to shell out. "They said you can't go out and have fun with your friends without spending money."

Frittering away $40 a week on coffees and $60 or more a week on alcohol was common.

McNeill's research suggests a society-wide rise in consumerism, combined with easy but expensive credit and younger consumers' lack of life experience are to blame.

"I certainly don't think it's a moral failing," she said. "The students are savvy people who are in a different consumption culture than we were. The idea is 'I deserve it, I should be able to have that because everyone else does'."

Nor was lax parenting at fault. "My study shows that generally parents try to teach their kids good values around spending, but we can't change young people's perception of what's normal to have."

Veda Advantage New Zealand director John Roberts said the jump in insolvencies among older people may partly reflect loss of investment income from finance company collapses and from sharply decreased bank term deposit rates.

Little said some older people were dragged into trouble by family members. Others come undone when they continue adding to their mortgage in middle age without taking into account the drop in income during retirement. "It's sad. They know they're not going to have the same earning power they had before," she said.

* Young spenders

Patrick Carr

$100 a week from part-time job, $25 from parents. $1000 savings to buy car. "This generation's a bit spoilt. They take money for granted."

Caitlin Stevens

Earns about $130 a week from two jobs. Owes mother $700 from a holiday, and shares a credit card with mother. "I really want to get rid of my debt so I can start saving."

Kelsey Buntain

$80 a week from job and parents. "Usually I spend my money on clothes, movies and food, but I have to save for a trip to Wellington. I've been told to stay away from student loans."