Foolish youth moments from alcohol-induced get-togethers mixed with late nights dot many early- to mid-20s memories. It's a time to find yourself, make mistakes and learn from your delinquency while having a good time. Throwing those 2 am last-call drinks on the credit card is not a big deal, and you can worry about it later, right?
Well, here's where Generation Y has to be better prepared while enjoying their youth. A recent report by Equifax on consumer credit trends provides insight on where debt is going, and breaks it down into age groups so that we can dive into the details and make some educated interpolations about the data. The first line in the report mentions that the delinquency rate for 18-25 year olds is now at 1.8%, which is the highest of any age group in Canada. Delinquency rate is not how many drunk nights you've had since your last birthday, but rather the percentage of people who are unable to make the minimum payment to their student loan, line of credit, credit card or mortgage by the due date agreed upon with the lender.
So, that 1.8%. Let's use something we can relate to easily - number of Facebook friends. Here are how many of your friends that are unable to afford their minimum credit card or student loan payment, based on your total number of friends:
- 100 friends - 2 delinquents
- 200 friends - 4 delinquents
- 300 friends - 5 delinquents
- 400 friends - 7 delinquents
- 500 friends - 9 delinquents
- 1000 friends - 18 delinquents
We aren't talking people who don't have enough money in their bank accounts to pay their $1000 credit card balance or $30,000 student loan. These are people who can't afford to make the $15 minimum credit card payment or $200 monthly student loan payment. This is a concerning trend, because that means that this part of the population has either chosen to or been forced to live so far out of their means that they cannot even make the miniscule interest payments on amounts they owe. And compared to just a year ago, the number of people who are in these situations has increased by over 11%! If this trend were to continue linearly for even just 5 years, 3.1% of us millennials will be in this group.
The report has some other interesting data, as well. Even though the two Albertan cities have had the highest average non-mortgage debt for a couple of years now, they actually had the smallest year-over-year increase in debt. This to me signals that Albertans have put a hold on consumer spending, although that was not good enough to keep the delinquency rate from soaring over 30% in both Edmonton and Calgary, indicative of a tough job market and increasing unemployment. On the other hand, the cities with a low dependency on oil appear to have increased the amount of money they owe while still being able to service their debt obligations. However, even if you live far from the oil patches, be wary of your spending and put your extra cash into savings, no one knows what or when the next industry to fall will be.
So, millennials, how do we get that 1.8% to decrease by next summer? The first thing you can do is look at your expenses, and make sure you are not spending excessively in places you don't need to be. Having an emergency fund to cover 3 - 6 months of expenses would be ideal, so you can still service your credit cards, line of credits and student loans if you lose your main income source, and you get some breathing room to get back on your feet. Based on Statistics Canada data, millennials have the highest unemployment rate of any group, at 13.2% for those 15-24 years old, making it even more critical to have that emergency fund - the odds are against you!