Introduction

In a concerning trend, loan applications from young adults have skyrocketed by a staggering 140% over the past two years in Singapore, indicating a dangerous over-reliance on debt to cope with mounting financial pressures. Those under 35 years old, particularly from Generation Z (20-27 years) and Millennials (28-35 years), now represent nearly 45% of all loan applications, according to insights from the loan-matching platform Lendela.

The Rising Trend of Borrowing

Recent data reveals that the average amount borrowed by these young adults is around $13,000, with some individuals seeking loans as high as $270,000. This alarming trend highlights the severe economic challenges facing Singapore's youth as they pursue loans to cover urgent expenses, consolidate existing debts, or fund significant life events.

Generational Differences in Borrowing

Delving deeper, it appears that the majority of Gen Z borrowers originate from low-income backgrounds, earning less than $36,000 annually. Conversely, Millennials tend to belong to the middle-income bracket, earning between $36,000 and $72,000, and they make up a significant portion of loan applications in this cohort.

A representative from Lendela noted the widening gap in financial health between the generations: “Middle-income Millennials are increasingly turning to loans, likely due to elevated cost pressures.” This statement is backed by data indicating a 23% increase in loan applications from Millennials earning over $48,000 within the last two years—signifying that this demographic is also feeling the pinch of rising living costs.

Reasons for Borrowing

The reasons for borrowing differ between the two generations. While Gen Z cites education (7.5%) and weddings (4.9%) as significant reasons for taking out loans, Millennials are more inclined to borrow for purposes related to managing debt (10.1% for credit cards) and home improvements (6.7%). This divergence in financial priorities illustrates that Millennials are likely at a stage where they are establishing households and dealing with longer-term financial obligations.

Debt Burdens

Remarkably, debts are becoming a significant burden for many Millennials, with Lendela reporting that 16% of them face debts exceeding $50,000. Alarmingly, 46% have obligations ranging between $30,000 to $50,000 and another 17% are burdened with debts from $15,000 to $30,000. This growing trend raises eyebrows about potential gaps in credit management skills among young borrowers.

Gen Z's Struggles with Debt

The situation appears equally dire among Gen Z borrowers, who struggle with managing their debt obligations. A concerning decline of 16% has been noted in applications from Gen Z individuals with a favorable Total Debt Servicing Ratio (TDSR). Meanwhile, applications from this group with severely unfavorable TDSRs, where monthly debt obligations surpass 80% of their income, have skyrocketed by 37%.

Conclusion

This troubling data paints a stark picture for young adults in Singapore as they navigate both increasing debt and surging living expenses. The findings from Lendela point towards an urgent need for improved financial literacy and credit management strategies to empower young Singaporeans in successfully managing their financial futures. The question remains: Is this the beginning of a deeper financial crisis for the future of Singapore's youth? With debt levels rising, it's time for a change.