Across the globe, consumers continue facing dramatic rises to their cost of living, leaving many scrambling to stay afloat. The same is true across Singapore, according to Lendela, a Singapore-based loan matching fintech, which found a deepening debt burden on Gen Zs and Millennials over the past two years.
Lendela revealed that many Millennials (28 to 35) in Singapore are facing significant cost pressures, likely caused by repaying mortgages, home renovations, and starting a family, the most common factors for the age group. Gen Zs (20 to 27) are also facing similar pressures, caused by slightly different reasons: with education and weddings in the top five reasons for borrowing.
There has been a significant spike in borrowing by Millennials earning over $48,000 annually (23 per cent) – with much of their money spent on credit card debt and renovation.
“Over the last two years, we’ve seen a gradual decline in the share of applications coming from Gen Zs (18 to 27) and younger Millennials (28 to 35), although the younger cohorts still account for close to half of all loan
applications today,” said Bryan Tay, Singapore country manager at Lendela.
“On closer look, we see that despite the decline, the average loan size requested by young adults has been
climbing over the past year, suggesting growing financial pressure on young adults who may be dealing
with a combination of factors, from inflation and the rising cost of living to raising young kids, housing, and
education.”
Younger borrowers must consider long-term financial health
Lendela explains it has seen a deterioration in debt serviceability (measured with the total debt servicing
ratio (TDSR) and the percentage of a borrower’s monthly income that goes towards all debt obligations) among Gen Z borrowers over the past two years.
This deterioration in debt serviceability, coupled with the surge in Millennial loan applications with large existing debts, suggests a lack of credit management know-how, as well as a deepening debt burden on young adults.
While the share of applications from Millennials with a favourable TDSR has risen over 11 per cent over the past two years, the share of applications from Gen Zs with a favourable and somewhat favourable TDSR has fallen significantly (16 per cent and 38 per cent respectively).
“While credit options need to remain accessible in a high-cost environment and to young adults who need them, it’s incredibly important for the long-term financial health of younger borrowers that they maintain a healthy credit profile. This involves paying on time and in full, as well as how many debt and credit facilities they have, on top of several other indicators, and can significantly influence the financing options available to them, as well as the associated costs,” Tay added.
It also says the share of applications from Millennials with large existing debts (over $15,000) has risen sharply, accounting for nearly a quarter of all young adult applications today.
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