Government policy debates have largely been focused on debt for the last seven years, however this year is reported to show a turning point, according to research by Citizens Advice. It's been found that whilst government debt is falling as a percentage of GDP, personal debt is rising relative to income.
Whilst personal debt is a growing problem, the nature of the causes are changing. Five years ago, credit card borrowing was the main source of the problem, but council tax arrears now tops the list, with rent, and energy bills also figuring high on the list. Despite this, unsecured debt is still shown to be acquired from traditional sources such as loans and other credit products. Meaning that whilst the root cause is different; the knock-on effect and outcome is the same.
The report also confirms what had been previously feared, in that the squeeze on income would lead to an 'explosion' of high cost credit lenders, however the surge of interest in payday loans has been effectively reduced by recent tightening of regulation.
Household Debt Predicted To Double by 2020
Current figures show that UK households currently have a collective debt of around £170 billion, however this figure is expected to rise significantly by 2020, with estimations based on the current climate estimated at around £300 - £350 billion.
As it stands, the growth of unsecured debt is the biggest cause for concern, with young adults being the most vulnerable. The report outlines that 15-24 year olds have an average debt of £12,215 – more than double the average of £5,785 in 2008-10, and three times the £3,988 average of 2006-08.
Unfortunately this rise cannot simply be accounted for by the increase in student fees, as the data shows that personal loans are five times higher in the latest data, than in the 2006-08 dataset. Alongside that the study also revealed that informal loans (friends and family etc.) has risen from an average of just over £30 to more than £1,000, for the same age group.
We do not yet know how permanent these changes in borrowing are, but the sustained increase over the last 9 years worth of data, raises cause for concern about the health and futures of younger generations. Being saddled with debt is one thing, but the reasons are often complicated and interconnected with other issues in people's lives; with the study also revealing that half of those with debt, had also sought help with another issue – making debt the most interlinked social issue at the moment.