Worrying rise in 18-25 year-olds entering formal insolvency procedures

RSM is predicting that official figures, due to be published next Tuesday, will show a 9 per cent rise in personal insolvency rates in England and Wales in quarter two when compared to the same quarter last year.

The data from Tracker, RSM's award winning early online warning system, predicts that total insolvencies for the quarter will reach around 31,500 cases, comprising 4,200 bankruptcies, 20,500 Individual Voluntary Arrangements (IVAs), and 6,800 Debt Relief Orders (DROs).

The latest numbers from RSM's Tracker database also reveal that since early 2016, there has been a continuous rise in the number of young people entering a formal insolvency process. 

While only 208 young people aged between 18 and 25 entered into an insolvency process in the first quarter of 2016, by the end of the latest quarter ending June 2019, this had risen to almost 2,000.

18-25 personal insolvencies data
Source: RSM's Tracker database

There has also been a corresponding rise in the percentage of young people aged between 18-25 entering a formal insolvency process as a proportion of the overall number for all age groups. This proportion has grown from 1 per cent in quarter one of 2016 to 6.5 per cent in the latest quarter ending June 2019.

18-25 personal insolvencies data
Source: RSM's Tracker database

Alec Pillmoor, a personal insolvency partner at RSM said:

'The projected figures for Q2 show an increase in the levels of personal insolvencies when compared to the same quarter last year, showing that many people are still being over-optimistic when it comes to estimating their ability to meet scheduled repayments when they fall due. 

'Of particular concern is the steady rise that we have seen in insolvencies affecting the 18-25 age group.

'There could be a number of explanations for this. We have been living through an era of low interest rates and relatively easy access to credit. Arguably young people without financial experience or relevant training may be more susceptible to the temptations of easy money without necessarily understanding how easy it is to rack up unsustainable debt.

'We've also seen an increase in more flexible – but less secure - ways of working. The rise of the gig economy and zero hours contracts have placed greater importance on the need to budget effectively. This could be proving a challenge for Generation Z.

'Debt charities have also raised concerns about the rise in sub-prime credit cards being targeted at those with low credit scores. These can have relatively high APRs when compared to other short-term credit alternatives, and can leave some borrowers in difficulty if they are unable to repay on time.'