/ Money

Are young people ‘proud’ of being in debt?

Happy girl in chair

A US study suggests owing money is like a ‘badge of honour’ for the young – with student loan and credit card debts something to brag, not worry, about. Do young Brits feel the same way?

When it comes to the question of owing money – particularly the borrowing that affects young people – I might as well say that I’m not of the puritanical, ‘put them all in debtors’ prison’ persuasion.

While some argue that the young are simply too accustomed to easy credit and don’t have the discipline to budget, it’s my belief that the necessity of some debts – student loans in particular – muddy the waters.

Yes, I confess to being alarmed by the findings by Ohio State University, which concludes that young people are ‘proud’ of owing money on credit cards and loans, especially where these have been used to pay for education. But I can’t say I’m hugely surprised.

To borrow, or not to borrow? That’s not the question

Currently, I don’t think young Brits are as laid back about debt as their US counterparts. I’m yet to meet anyone who’s happy about owing the Student Loans Company tens of thousands of pounds, or blasé about the prospect of paying back their negative bank balance.

But why would anyone who’s borrowed money to fund their education spend time worrying, wringing their hands and grinding themselves into a guilty, terrified depression?

For many, borrowing isn’t a choice – there’s no question about whether you have to take out a loan if you want to go to university. Once the decision to do so is made, I know from experience that the only option is to be as calm as possible about the ensuing debts – and what it might mean for the future.

Good borrowing, bad borrowing

Student loans and credit cards are very different beasts – but being able to properly differentiate them relies on an understanding of personal finance that, in my experience, too few young people possess.

I was offered my first credit card at the tender age of 18, having had no formal financial education whatsoever. Nowadays, many student bank accounts come with a credit card option – some of which are complete with interest rates of around 20%.

I’m not convinced that we’re equipping young people with the information they need to distinguish between unavoidable loans that constitute an investment in their future (and about which they might justifiably feel relaxed), and commercial borrowing that could trap them into debt for years to come.

With this education lacking, can we really blame young Brits if they arrive at a point where feeling fine about all types of borrowing is the norm?

Thinking of credit card, overdraft and loan debts as things to be proud of is clearly misguided – but I can understand why wearing a student loan like a medal, proving your commitment to getting a degree, might feel good.

The crucial thing is that we help the next generation of borrowers understand the difference – not to mention the consequences of failing to manage their money accordingly.

Sophie Gilbert says:
14 June 2011

I don’t see how merely having a student loan proves a commitment to getting a degree. Working your a**e off and getting the degree does.

Some people need to be protected from themselves. One solution to the debt mess we’re in could be to make it illegal to give you more credit to than you can afford (student loan excepted for obvious reasons). You don’t earn a living, you don’t get a credit card, and when you do earn a living the amount of credit you get is in proportion with your salary, and any debts are also taken into account.

Another solution could be to also make charging of unreasonable and excessive rates of interest illegal – a 20% interest rate is nothing compared to this example just got off the internet: “Representative 1734% APR. Representative example: Borrow £50 for 30 days. The total charge for credit is £14.75. Interest is fixed at a rate of £14.75 per £50 loan. The Total Repayable is £64.75.” Eye-popping, isn’t it?

But this has all been said before, hasn’t it?