I was recently interviewed by Her World magazine (June 2022 issue) on an article titled “Dealing with Debt”.
The subtitle reads: “Many millennials are finding themselves stuck with unimaginable debt. Why is this happening and what can they do about it?”
Millennials are those who are between the age of 26 to 41 in 2022. Here are the interview questions and my responses:
Have you noticed an upward trend of millennials (those born in 1981 – 1996) amassing financial debt? If so, where are these debts from, or how did they get to be in this position?
Indeed, there is an upward trend in personal debt levels, especially among those below age 40.
Baby boomers and generation-Xers (those born before 1980), especially in Asia, had a very different experience growing up when compared to millennials. In many cases, the former had a stricter, more disciplined upbringing which focussed on studying hard, saving money, and being responsible for their futures. They also had fewer temptations to spend on new gadgets & trinkets, and a mindset of repairing & re-using what they already owned. They had a healthy fear of taking loans unless absolutely necessary. In many cases, they also looked after the needs of their old relatives and many siblings.
For millennials, the usual sources of bad i.e. unwise and unnecessary debt are lifestyle expenses such as consumer goods, travel, high fashion clothes, luxury accessories, credit cards spending, and a fancy car. “Buy Now, Pay Later,” or BNPL has become a way of life for them. This is also because of huge social pressure to keep up superficial appearances of success.
On the other side, the makers of goods are only too happy for people to keep “renting” their products i.e. paying a monthly or annual fee to use it, rather than be an outright owner for the natural life of the item. They enact “planned obsolescence” as profitable strategy to make customers keep “upgrading” to their latest offering.
Meanwhile, an example of good or wise debt is mortgage for buying the home at a reasonable price.
Some millennials also incur large debts for university education in Western countries. Whether this is a wise or unwise liability depends on the type of course they did, and how it helps them earn a greater income thereafter.
Can you give an average figure for how much debt each millennial might be carrying?
According to a Straits Times report in August 2021, the average personal loan and overdraft balances for borrowers from 21 to 29 years old shot up to $49,689 in the first quarter of 2021, about 42 per cent higher than the average of $34,941 in the first quarter of 2020.
This is big jump, and is indicative of the issue. The precise levels of debt, of course, varies widely from person to person. One thing is for sure: there must be a concerted effort to rein in these figures from spiralling out of control. Because getting every deeper into debt is much easier than reversing course to get out of it.
What are the pitfalls/mistakes that you see with millennials when it comes to managing their money?
Can you suggest the best ways to pay off these debts?
Types of debts include:
Paying off all types of debt requires these 4 attributes:
The 5 steps to pay off debts include:
Do not hesitate to seek professional help!
The earlier you do so, the greater the clarity you will gain about your debt situation and the quicker you can repay your debts.
Approach your bank to work out a debt consolidation and repayment plan.
Another avenue for help is Credit Counselling Singapore. Credit Counselling Singapore provides financial guidance and support on debt managing and budgeting. It can help you address your unsecured debt problem through education, counselling, and facilitating repayment, so that you can pay your debt in a more manageable manner.
Is filing for bankruptcy a good idea if you’re trying to eliminate debt? And if you do file for bankruptcy, how might that affect your finances in the future?
In Singapore, bankruptcy is NOT a good idea at all, if one can avoid it. This is because the status of being bankrupt – even if discharged – stays on your record for years. This way, people are incentivised to act responsibly when they take loans, which in turn keeps interest rates on such loans lower for everyone.
But of course, when there is no other choice, one can take up the bankruptcy route and go through the long process of becoming discharged.
Can you share some expert tips for millennials to improve their financial health so that they can set themselves up for a better financial future?
My tips include:
In conclusion: To achieve financial freedom, one of the vital things to aim for is zero debt obligations or minimal reliance on debt. Take control of your finances today!
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