Article From Straits Times

Found this article from the straits times dated 23 Jan 05, Quite meaningful read on...

Young, Single & Bankrupt
Old enough to drive, not savvy enough to stop splurging, they're a card away from financial ruin
By Leong Chan Teik

INCREASINGLY, young adults are joining Generation D - that is, Generation Debt.

The Official Assignee (OA), which administers the estates of bankrupts, says the number of undischarged bankrupts aged 30 or below jumped from 785 in 2001 to 1,375 last year.

Among them is former civil servant Patrick (not his real name) who was bankrupt two years ago at 27, with $33,000 in credit card debts. His marriage broke up soon after.

'When the couple came to me, they were blaming each other for their money woes. He said: 'She knows the high life as much as I do',' says lawyer Lim Choi Ming.

Patrick and his wife had frequently wined and dined at expensive restaurants, and bought a car and expensive goods - including a refrigerator that, amazingly, cost $2,000 - for their lavishly renovated flat. Trouble was, it was all on credit.

'I was taken aback. They were very young and shouldn't have had all that debt, but they did,' says Ms Lim.

The OA says 67 per cent of non-business related bankrupt- cies, regardless of age, arise from excessive use of credit.

Credit is expensive - charged at interest rates of up to 24 per cent a year - but many overlook that in their quest for pleasure and to keep up appearances.

The Credit Bureau says only 21 per cent of credit card holders aged between 21 and 29 did not 'revolve' at all from July 2003 to June 2004. In other words, only 21 per cent had a clean record of paying up in full every month.

It says rollover debt for this age group hit $205 million last November, or 8 per cent of Singapore's $2.6 billion card debt - the latter being a record high.

Those belonging to Generation D expect to live well as soon as they leave school - even if their income does not match their dream lifestyle.

'It's very common for young people to start going on overseas holidays before they even have a job,' says 24-year-old Sylvia Mun, a financial planner at Manulife Financial.

And when they start work and can no longer expect their parents to pick up the tab, they fall for credit card schemes that entice them to holiday first and pay back over, say, 12 months.

Cars are a particular weak- ness for young men.

Says Ms Mun: 'I know of guys who earn $1,600 a month who will buy a car - cheaper brands that cost $600 to $700 in monthly instalments. Petrol and other running expenses cost another few hundred dollars.

'Usually, they feel they need a car to attract a girlfriend. Or they see a friend buying a car and they want one too.'

Mr Kuo How Nam, the president of Credit Counselling Singapore (CCS), a non-profit organisation that helps people resolve their debts, says: 'We have had many cases of young adults who were intoxicated by their new-found earning ability and went on a spending spree.

'Very often, there is a disconnect between what they think they deserve and the income necessary to sustain this lifestyle. The gap is met using easy credit.'

Thus, among those who have not sunk into bankruptcy, many have spending habits and moun- ting debts that are putting them on the slippery slope towards it.

Take administrative assistant John, 27, who applied for five credit cards in one year, spent his nights at karaoke lounges, and bought nice clothes and a fancier hi-fi system for his car.

A friend cheated him too, he says, and now, his debts total $40,000. A bank referred him to CCS, which helped him devise a repayment plan. Three banks have agreed to it, but two others haven't yet.

He says: 'I'm keeping my fingers crossed that I can avoid bankruptcy. It's a horrible thing to happen when I'm in my 20s.'

If all the banks agree to spare him, the mandated road to recovery will still be gruelling: Over the next few years, he will have to curtail his spending, repay his debt in instalments, and live without a credit card.

Too many temptations

ASSOCIATE Professor Tan Soo Jiuan of the National University of Singapore's Department of Marketing points out two recent trends that undermine any inclination young adults may have to save their hard-earned money.

First, they are bombarded by a proliferation of alluring IT gadgets and so-called lifestyle products and services. 'These are hyped up in the mass media as a status symbol. Handphones are the No. 1 culprit,' she says.

Second, credit pushers are aggressively targeting young adults. 'That leads to many temptations for those below 30, who are still struggling to establish themselves. They are particularly vulnerable because of poor personal discipline and financial prudence,' she adds.

The Credit Bureau says people in the 20-29 age group have on average 3.4 cards - a figure which is higher than, or equal to, that for other age groups except 30-34, whose figure is 3.6.

But averages mask what is happening in certain circles. Ms Josephine Koh, 27, the finance manager of a firm selling skincare products, says: 'Among my friends, it's common to have at least half a dozen credit cards and as many as 10.'

Some, but not all, people can handle the easy credit. Says Ms Koh: 'We are sensible. We don't spend to the limit, and we know that the interest rate is not low.'

Education is key to reining in overspending among the young, say some observers. Schools and parents need to teach the young Personal Finance 101. If nothing else, parents should not be present a sad example themselves.

'If parents are excessive spenders, they set a bad example for their children,' says Mr Vincent Chen, 56, a father of two sons aged 27 and 29, and a committee chairman of the Securities Investors Association of Singapore. 'I don't think there's a difference between a $150 shirt and a $10 one. I'm glad my sons are sensible about money too.'

If the ranks of Generation D are growing in Singapore, the rate is even faster in some developed countries. In Singapore, 6.4 per cent of undischarged bankrupts were aged 30 or below as at the end of last year.

In Australia, of the 22,639 people going into bankruptcy in 2002 to 2003, 9 per cent were under 25. In the United States, about 120,000 people aged 25 or under filed for bankruptcy in 2000, up from 80,000 in 1991.

Naivete about money has cost them dearly - all for a few fleeting moments of the high life.