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

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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

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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

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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

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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