breakout: promoting responsible use of credit among young people
TRANSCRIPT
BREAKOUT SESSION Promoting responsible use of credit among young people
20 April 2016
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Promoting responsible use of credit among young people
Moderator
Jim Stolze
Founder of TEDx Amsterdam, The Netherlands
Helen White
Head of Financial Capability, UK Money
Advice Service, United Kingdom
Minou van der Werf
Researcher at Nibud, The Netherlands
Janneke Ratcliffe
Assistant Director, Office of Financial Education, Consumer
Financial Protection Bureau,
United States of America
Ana Claudia Silva Leoni
Superintendent of Education at the
Brazilian Financial and Capital
Market Association
Lyndwill Clarke
Chairperson of the Consumer Financial
Education Technical Committee of the
Committee for Insurance, Securities and
Non-banking Authorities (CISNA), South Africa
Panelists
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I. The problem
4 |
Disclaimer
This presentation is being made by a Consumer Financial Protection Board representative on behalf of the Bureau. It does not constitute legal interpretation, guidance or advice of the Bureau. Any opinions or views stated by the presenter are the presenter's own and may not represent the Bureau's views.
Note: This document was used in support of a live discussion. As such, it does not necessarily express the entirety of that discussion nor the relative emphasis of topics therein.
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US: College Campus Credit Cards• Number of accounts fell 58% 2009-2014
2009 2010 2011 2012 2013 20140
500,000
1,000,000
1,500,000
2,000,000
2,500,000 Restricted marketing of practices
Restricted extension of credit to persons under 21
Required disclosure of agreements
http://files.consumerfinance.gov/f/201512_cfpb_college-credit-card-agreements.pdf
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US: Credit histories and scores
19-29 30-46 47-65 66+$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Average Debt by Age
19-29 30-46 47-65 66+500
550
600
650
700
750
800
850
Average Credit Score by Age
Experian 2012 data, scores are VantageScores. http://www.experian.com/live-credit-smart/live-credit-smart-2012.html
Promoting responsible use of credit among young people 7 |
One in five young adults is over-indebtedOver-indebtedness is where people report that keeping up with bills and commitments is a ‘heavy burden’ and/or they have fallen behind with or missed payments in at least three of the last six months.
Those aged 25-34 are the age group most likely to be living with a debt problem (one in four or 2.1m).
UK average is 16%, just under one in six adults. This rises to one in five 18-24 year olds, with geographical hotspots where it is higher.
Over-indebted 18-24 year olds are less likely to be finding their debts a heavy burden, but more likely than other age groups to be missing payments.
Promoting responsible use of credit among young people 8 |
Impulse buying is also more prevalent among almost a third of young adults, higher than other age groups
69
51
40
56
7
12
14
10
8
11
12
10
6
9
12
8
2
3
5
3
6
10
12
9
14%
22%
29%
20%
0 to 5 (does not sound like me) 6 7 8 9 10 (sounds a lot like me) 8 or more
All 18+
Young adults
Working age
Retirement age
O4. Impulse buying can affect how you manage your money Base: All: All 18+ (3,461), Young adults (744), working age (2,786), retirement age (680)Financial Capability Survey 2015. Don’t knows not shown
Promoting responsible use of credit among young people 9 |
Reported debts over £20,000 – including student loans – is highest among young adults at 11%
Retirement age
Working age
Young adults
All UK 18+
1
6
11%
6
2
8
6
6
8
23
16
19
11
14
13
13
4
3
4
4
65
36
41
43
£20,000 or more £10,000 - £19,999 £1,001 - £9,999 £101 - £1,000 £100 or less
Nothing - I have no outstanding credit
April 2016 is when graduates who took out increased student loans for higher education from 2012 start paying them back.
E7. If you added up all of your/your and your partner/spouse’s balances on credit cards, store cards, personal loans, hire purchase, car finance arrangements and student loans, approximately how much do you owe?Base: All: All 18+ (3,461), Young adults (744), working age (2,786), retirement age (680)Financial Capability Survey 2015. Don’t knows not shown
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61% of Brazilian households are in debt
Source: CNC – National Confederation of Commerce, Services and TourismPeic: Consumer Debt and Default Survey
Type of debt 2015
Credit card 76,1%Store installment purchases
16,9%
Leasing (car) 13,7%Personal loans 9%
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What grade would you assign to your financial life?
Source: SPC Brasil/Meu Bolso Feliz*Young adults between 18 and 34 years old
What strategy do you adopt every month to honor all your commitments?
Answers Young adults between 18 and
34 years oldPay some bills after their due date 22,4%Take out loans and use the credit card or overdraft limit to pay your bills 12,4%Use savings to pay your bills 8,5%
1 10Average*:: 6,2
1 to 3
10,9%4 to 6
43%7 to 10
46,1%
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What are your main expenses?
Radar Jovem, 2015 – B2
Technology (Smart phone, Internet and pay TV) (55%)
What items do you cut when you have
to save?Entertainment (66%)
Awareness and Holding of Credit and Loan Products
16-19 20-24 25-29 30-34 35-49 50-64 65+0
10
20
30
40
50
60
70
5660 62 62
65 6359
35
44 44 42 43 42 42
Awareness of Different Types of Credit and Loan Products
Formal Credit and Loan Index Informal Credit and Loan Index
(0-1
00) A
war
enes
s Sco
re
o Awareness of different types of formal and informal credit and loans remains fairly constant across age groups
o However, the holding of credit and loans follows the same inverted u-curve pattern that is mirrored in the self-reported indebtedness measure (lifecycle effect)
16-19 20-24 25-29 30-34 35-49 50-64 65+0
10
20
30
40
50
11
23
3437
42
32
19
7
17
27
19
28
22 22
Holding at Least One Credit and Loan Product
Formal credit and loan Informal credit and loan
% w
ho h
as o
ne c
redi
t and
loan
pro
duct
HSRC Social Attitude Survey 2015
Self-reported indebtedness
16-19 20-24 25-29 30-34 35-49 50-64 65+0
5
10
15
20
25
30
9
15
23 23
26
1917
Percentage agreeing that they have too much debt at present, by age group (2015)
Total agreement National average (20%)
Are there age group differences in levels of self-reported indebtedness?
o Reported current over-indebtedness follows an inverted u-curve across the lifecycle
It increases progressively from around a tenth of those in their late teens (9%) to a high of 26% of those aged 35-49 years
It falls again to slightly below a fifth of older cohorts.
Above-average levels of reported over-indebtedness are apparent among those aged between 25 and 50 years
Likely to at least partially reflect additional financial commitments associated with the transition to adult roles, especially marriage (and lobola) and parenthood.
HSRC Social Attitude Survey 2015
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Debt among 18- t/m 24-year-olds in the Netherlands
Minou van der Werf, Nibud
Source: Nibud, 2014
Minou van der Werf, Nibud16 |
Experience of debtActually having debt (in our definition): 42% ≠ experiencing debt: 22% ≠ experiencing financial problems: 8%
Not everyone sees having a shortage of money as a problem: 76%Depends on the attitude toward it.
Source: Nibud, 2014
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II. Causes
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• Of the total 23.74 million credit-active consumers, 41.6 % have impaired records -NCR Quarterly Report, December 2015
• Main spending – Entertainment + Clothing - Clothing store credit cards
• One third of 24.5% unemployemet in SA is youth - StatSA, March 2016– Target for unregulated money lenders - “Mashonisa’s”
• Loans for Lobola – South African Council Of Churches– Lobola as a reason for delayed or deferred marriage (47% Men /
50% women – 16-34) – HSRC 2013– Young men indebted early on life
Social Impact/Cause of debt
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Causes of debtbehavior & financial upbringing
Minou van der Werf, Nibud
Behavior: Materialism Impulsiveness
Financial upbringing pays:
People who say they learned from their parents how to handle money: have less trouble making ends meet: 36% to 59% less often have financial problems: 15% to 48%
Also: children see, children do
Source: Nibud, 2016
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III. Solutions
Promoting responsible use of credit among young people 21 |
Young adults and life transitionsThere is a lot of evidence to indicate that key transitions in life – life events – offer a prime ‘teachable moment’ to improve financial capability for people of all ages.
Young adults can go through many transitions – and increase their risk of accumulating debts – in navigating their own pathway to sustainable incomes and independent living after school.
They can start off in a highly vulnerable state, for example if they are leaving care or facing homelessness – or they can experience vulnerabilities at any point during these transitions.
We are looking to pilot interventions that reflect young adults’ true experiences of money management in these contexts.
Promoting responsible use of credit among young people 22 |
Near-to-peer is an approach we testedNear-to-peer is an established approach used in youth practice, which we tested in the context of financial capability.
We used ‘exposure sessions’ in research labs to test our hypothesis that 16-21 year olds (young people) would respond well to ‘money stories’ told by near-to-peers aged 22-29 (young adults).
Empathy with the ‘just like me’ message was found to produce a change of attitudes and of planned behaviours among participating 16-21 year olds.
We are looking at the feasibility of piloting near-to-peer interventions in real-life settings and contexts.
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Como Investir em Você (How to invest in you)
1E A R N I N G
2S P E N D I N G
3S A V I N G
4I N V E S T I N G
5P L A N N I N G
24 |
Some results
Source: How to invest in you - ANBIMA
• Program implemented in 2014• It is currently available in 7 universities• More than 74,000 students have been invited to
attend the course• More than 23,000 subscribers• More than 7,000 approved• In 2016, the course is being offered to 191,000
students
25 |
Legislation/RegulationNational Credit Act - NCR• Reckless lending• Marketing prices and disclosures• Agreements and quotes• Enforcement• Debt Councillors
FAIS Act - FSB• Imposes requirements of FSP to ensure
that consumers get proper financial advice
Financial EducationSchool Level Grades 7- 9 (13-15)• Money in Action resource – Curriculum
Based – Money management• Teacher training on use of resourceSchool level Grade 12 • School camps• Face to face workshops• Budgeting, Savings, Scams, Needs & Wants,
Debt, Retirement, savings & investments
University Student seminars• Undergraduates• Main challenge – debt management• Presenting real life scenarios• Information on rights and responsibilities Community based• Youth workshops – NYDA• Money management
Interventions
26 |
Combining the best of two worldsEffective (!) financial education & choice architecture
Minou van der Werf, Nibud
Positive effect on financial knowledge and skillsquestions, not on numeracy related questions
Drawback: no control group
Source: Nibud, 2014
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Combining the best of two worldsEffective (!) financial education & choice architecture
Minou van der Werf, Nibud
Before 2009/2010 Before 2013/2014
After 2009/2010 After 2014/2015
Maximum loan
Amount you
already received
Source: Van der Steeg & Waterreus, 2015