UK young adults are being forced into a ‘survival spiral of debt’, taking on credit card debt and other types of borrowing just to keep a roof over their heads. That’s according to new research from financial education charity Money Ready, supported by the Berkeley Foundation.
Borrowing for necessity, not nice to have
In contrast to prevailing narratives around young people borrowing for luxury lifestyles – such as to buy the latest tech gadgets or take holidays in far flung destinations – the data paints a starkly different picture.
Rather than borrowing recreationally, the study into financial literacy and housing insecurity reveals that almost a third (32%) of 18-40 year olds have used credit cards specifically to cover bills including rent and mortgages. Over a quarter, 26%, are forced to accept loans from family and friends, 24% use Buy-Now-Pay-Later (BNPL) schemes, and 21% are dependent on bank overdrafts. Overall, 70% of young adults have turned to at least one form of credit just to cover housing expenses, with people borrowing at a rate of twice a month on average.
The housing insecurity cycle
This survival borrowing creates a damaging catch-22 with many unable to get out of the debt spiral they find themselves in. Over a quarter (26%) of young people report being rejected for a rental property or mortgage due to their financial circumstances. And over a third (34%) of these rejections were caused by a failed credit check due to unknown bad debt.
With 27% of young adults reporting they wish they had been taught how to build and maintain a good credit history before entering the housing market, and 23% wishing they better understood available financial support, Money Ready is highlighting how short-term borrowing is trapping young people in a cycle of housing insecurity.
The organisation is calling for change – with calls to action including statutory money guidance embedded in homelessness support, and financial education as a named prevention activity under the existing Homelessness Reduction Act 2017 prevention duty.
Becky Young, Director of Fundraising and Communications at Money Ready, comments: The prevailing thought that young people fall into debt because of luxury spending or lifestyle choices is a total myth. They borrow to keep a roof over their heads. When a third of young adults are relying on credit cards just to pay their rent or essential bills, it is clear that the system is broken. There is a vicious cycle of having to borrow to stay housed today, which damages credit scores and ends up locking young people out of secure housing in the future. We urgently need to equip young adults with practical financial education to navigate credit, build credit health, and avoid the survival debt trap before it compromises their future.’
Sally Dickinson, Head of the Berkeley Foundation, adds: ‘This research highlights the severe financial strain young adults are experiencing just to maintain basic housing stability. Relying on short-term credit to cover rent and bills is an unsustainable reality for far too many young people across the UK. This report highlights the extent of the problem and calls for real actionable change to help young adults gain the financial knowledge and confidence needed to build resilient financial foundations and navigate the housing market successfully.’
Please see further details in Money Ready’s full report The missing money lesson behind homelessness: Financial literacy and its impact on housing insecurity in the UK here.
