Cost pressures push more middle-income young adults into debt

Loan applications from young adults have risen 140% over the last two years.

Young adults are increasingly taking on debt, with loan applications up 140% over the last two years.

In Singapore, those under 35, comprising Gen Zs (20-27) and Millennials (28-35), make up 45% of loan applications.

Lendela reported that the average loan size young adults applied for in the past two years is $13,000, with some applications going up to $270,000.

Amongst Gen Z, the majority of borrowers are from the low-income group (under $36K), whereas Millennials in the middle-income bracket ($36K to $72K) are the most frequent loan applicants.

"The substantial disparity between the share of applications from Millennial and Gen Z borrowers across the middle to higher income groups could be attributed to a natural income disparity, but might also suggest heightened cost pressures on middle-income Millennials,"  Bryan Tay, Singapore country manager at Lendela, said.

These cost pressures are reflected in the growing share of middle- to mid-high-income Millennials in loan applications.

According to Lendela, Millennials with annual earnings exceeding $48,000 have experienced a 23% spike in their share of loan applications over the past two years.

Although Gen Zs and Millennials primarily borrow for debt consolidation, bills, and home-related expenses, their specific needs vary depending on their stage of life.

Gen Zs cite education (7.5%) and wedding (4.9%) as amongst the top five reasons for borrowing, while Millenials' loans mostly go to credit card debt (10.1%) and renovation (6.7%).

"With the exception of education, weddings, and renovation, the most common reasons for borrowing among young adults are clearly associated with the cost of living,"  Tay said.

Meanwhile, Lendela also found that the proportion of Millennials with significant debts has grown. Those with existing debts over $50,000 now make up 16% of loan applications, whilst Millennials with debts between $30,000 to $50,000 and $15,000 to $30,000 represent 46% and 17% of applications.

Lendela said the rise in loan applications from Millennials with substantial existing debts points to a lack of credit management skills and an increasing debt burden on young adults. This trend is further reflected in the deterioration of debt serviceability among Gen Z borrowers over the past two years.

The share of loan applications from Gen Zs with a favourable or somewhat favourable total debt servicing ratio (TDSR) has significantly decreased by 16% and 38%, respectively.

Meanwhile, the share of applications with a very unfavourable TDSR (above 80%) has risen by almost 37%.