The higher debts of late could have been fuelled by low interest rates, said experts.

Associate Professor Yu Yinghui, head of the Master of Finance programme at the Singapore University of Social Sciences, noted that the Government had capped the annual effective interest rate of unsecured personal loans at 8 per cent since April last year, as part of Covid-19 support measures.

But unemployment and lower earnings could also be driving young adults with fewer resources to personal loans and overdrafts as they try to borrow their way out of the crisis, experts noted. In March, the unemployment rate among residents aged below 30 was 6.4 per cent.

Associate Professor of Finance Song Changcheng from the Lee Kong Chian School of Business at Singapore Management University, said: “If it is due to youth unemployment, it is often transitory. And the Government already has the SGUnited Traineeships programme and other relief to help young people and help small firms hire young people.”

It could also be because many are employed on paper but doing part-time jobs or food deliveries that do not pay enough. Prof Song highlighted the research showing that most workers clocked fewer hours or took pay cuts rather than become unemployed last year.

OCBC Bank chief economist Selena Ling said the impact from rising personal debt among younger people will depend on when things turn around.

“If subsequently they can find permanent jobs, then they can pay off the debts. But if the duration is extended, then loan delinquency or default rates may rise,” she added.

Currently, the overall delinquency rate is still low for this age group, so it would be hard to say if one might see more bankruptcies among the young, she added.

Credit Bureau Singapore (CBS) data showed that for those under 30, the personal loan delinquency rate climbed 13.4 per cent in the first quarter of this year, compared with the previous three months.

The rate refers to the percentage of borrowers with payments 30 days or more overdue. Overdraft delinquency rate was up 12.8 per cent in the same period

CBS executive director William Lim has noted an “increase in credit consumption for mortgage loans, personal loans and overdraft from this younger segment” in the first quarter of 2021.

“We believe it could be attributed to them being more active again following the pandemic-strained 2020 and possibly the higher property prices.”

CBS data also showed that mortgage debt for this age group was 2.6 per cent higher in the first quarter of this year compared with the last three months of last year.

But average credit card spending fell 5.6 per cent over the same period.

Text: Joyce Lim/The Straits Times

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