Young people not always aware they are using credit: better regulation and marketing of products needed

08 November 2023

New research from Coventry University (supported by abrdn Financial Fairness Trust) on young people’s experiences of using credit found some did not always know that they were actually using credit (e.g. Buy Now Pay Later).  Researchers suggest this may be due to how certain products are marketed on social media by financial services and FinTech providers. However, it may also be a coping method, used by young people to reduce the fear of taking on debt, or the risk of becoming indebted, due to a lack of financial education. 

One participant said:

‘No, I have not used buy-now, pay-later … Sorry, I've used Klarna, actually, I actually have used it.  Is that the one that you do in instalments? Yes. I think I've done that once or twice when I was buying clothes and stuff online…”

The report calls on The Financial Conduct Authority (FCA) and the Money and Pensions Service (MaPS) to build on existing work to limit young people’s unnecessary exposure to unsuitable credit and credit risks to protect young people’s financial well-being. In particular, researchers call for the FCA to regulate Buy Now Pay Later better.

Credit use is almost inevitably part of young people’s financial experience, found the research. However, social taboos around talking about money openly and realistically mean young people do not always have the best chance of learning how to use it well. The report calls for practical improvements to financial and credit education.

Researchers also found certain groups of young people are more likely to have negative credit experiences. Some do not have fair access to borrowing for their future: e.g. apprentices compared to university students. Others have to borrow for essentials such as rent or food. The report calls for a National Living Wage for apprentices and under 23s in work.

Young people identified the role and responsibility of financial services and FinTech to help them feel in control of their money and support their financial well-being, saying:

  • Institutions that they interact with from financial services to employers could do more to support them.
  • Financial services and FinTech could play a vital role in providing access to responsible credit and use the data they hold for good to help young people manage their money effectively.

The report also calls for the following changes to enable young people to manage their credit better:

  • Banks, lenders and Fintech refine money-management products and services, and improve their reach, to help young people manage their credit and financial well-being.
  • MaPS should review financial education for young people, particularly around credit, working with schools, universities, employers and specialist organisations providing financial education.
  • The Government should address broader financial policies around income and spending, to tackle factors beyond young people’s control, which make managing credit more difficult. Greater certainty, and support, are needed to help young people to meet essential bills such as the cost of housing and utilities to avoid the use of credit.

Dr Lindsey Appleyard, Assistant Professor at the Centre for Business in Society (CBiS), Coventry University, said:

“The research shows that young people have experienced significant financial setbacks as a result of the Covid-19 pandemic and the cost of living crisis. Young people have shown that they are financially capable but factors outside of their control often make it challenging to manage their finances and often turn to credit as a solution. Young people could benefit from better and tailored support to help them navigate an increasingly complex financial system.”

Viv Jackson, Programme Manager at abrdn Financial Fairness Trust, said:

“Care needs to be taken in the way credit products are marketed to young adults, so they fully understand when debt is being taken on. We also need to make sure the right products are available to young people on low-to-middle incomes, such as young apprentices, so they can build their futures alongside more financially secure peers. Banks, building societies and fintech need to refine money-management products and services, and improve their reach, to help young people manage their credit and financial well-being.”

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