This site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. find out more here X
Arrow Global


Worrying lack of understanding about borrowing among young adults revealed by UK-wide debt research
Published on 06/11/2015

  • Two thirds (66%) of young adults who have sought a loan either do not know what APR means or see it as unimportant
  • 45% of young adults say it is not very important to repay their debt on time
  • Nearly a quarter (22%) of young adults struggle with basic numeracy that is important for understanding borrowing

There is a worrying lack of understanding about borrowing among young adults in the UK, according to the results of a nationwide survey of borrowers* by FTSE-listed Arrow Global, a leading European purchaser and manager of debt portfolios.

It is often necessary for young adults to borrow in order to get them started in life. However, research found a lack of understanding among 18-24 years olds on basic issues such as how debt interest works and the importance of repaying their debt.

The research found that over half (51%) of 18-24 year olds have increased their borrowing in the last five years. The most common form of debt for young adults is a student loan: 59% of borrowers in this age group have a student loan, with an average balance of £21,101. Of this group, 61% say they do not know what the current interest rate is for the loan. (see tables 2 - 4 below)

Over a quarter (26%) of 18-24 year olds who have sought a loan (of any kind) do not know what APR means and a further 40% see it as having little or no importance. This contrasts strongly with older generations, for example of those aged (55+) just 1% do not know what APR is and 78% see it as important.

Table 1: Knowledge of what APR means and views of its importance

  All Age 18 - 24 Age 55+
% who do not what APR means 7% 26% 1%
% who see it as of little or no importance 26% 40% 21%
% who see it as having fair or great importance 67% 34% 78%

Base excludes those who have not applied for a loan

The findings highlight that while consumers can get into debt repayment difficulties through no fault of their own - for reasons such as a death or illness - younger consumers are at risk because of a lack of understanding that could easily be improved through education on managing their debt.

Failing to repay a debt on schedule can have major implications, including making it harder to get a mortgage or other debt in future. But 45% of young adults say it is not very important to repay their debt on time, compared to 73% of over 55s. (table 5)

The research also revealed a poor grasp of basic numeracy that is important for understanding borrowing. Nearly a quarter (22%) of 18 - 24 year olds do not know how to calculate 15% of 200, implying little understanding of what the interest rate on a loan means. In comparison just 9% of over 55s could not make this calculation. (table 6)

While the lack of understanding about borrowing was particularly acute among 18-24 years olds, the research found that older borrowers also suffer from a basic lack of understanding about their debt. Over a quarter (26%) of all UK adults with debt don't know what interest they pay on their mortgage, rising to 43% who don't know the rate on their bank overdrafts. (table 4)

Tom Drury, Chief Executive Officer of Arrow Global, comments:

"Borrowing is often necessary for young adults getting started in life, whether it is to fund higher education or to finance purchases to get started in a job or new home. But anyone borrowing money needs to understand exactly what they're doing. It is concerning to see that so many young people don't have an understanding of the basics of borrowing and debt.  A lack of understanding is less extreme but also worryingly evident in older age groups.

"One of the problems is that debt is a taboo subject in Britain.  We need to talk more about it so that everyone understands how to borrow and manage their finances effectively, without taking on more debt than they can afford to repay. Debt charities do a fantastic job of educating people when their debt becomes a problem for them. But this conversation needs to happen earlier in life so that everyone understands how to use debt positively and not risk it being a problem they simply don't understand.

"Debts can get out of hand for all sorts of reasons that are hard or even impossible to plan for, such as unexpected illness or a bereavement. In these situations, it is not a lack of understanding about debt that causes a problem. The problem that can be fixed is when people end up in more debt than they can repay because they didn't understand the implications of their borrowing."

Table 2: Change in consumers' debt over the last five years

  All Age 18 - 24 Age 55+
Increased 27% 51% 17%
Decreased 43% 10% 60%
Stayed the same 26% 33% 19%
Don't know 4% 7% 3%

Base: full survey sample

Table 3: The top 3 types of debt held by 18 - 24 year olds

Type of loan % holding loan Average balance
1.     Student loan 59% £21,101
2.     Loan from family of friends 25% £1,644
3.     Overdraft 23% £299

Base: 18 - 24 year olds with debt

Table 4: percentage of adults with debt who do not know the interest rate they are being charged

  All Age 18 - 24 Age 55+
Mortgages 26% 20% 27.6%
Unpaid credit loans 33% 32% 34.4%
Bank overdraft 43% 37% 49%
Student loans 53% 61% -

Base: those with stated type of loan

Table 5: Attitude to debt - how important is it to pay debt off on time?

  All Age 18 - 24 Age 55+
% saying very important 66% 55% 73%
% saying quote, not very, or not at all important 34% 45% 27%

Base: full survey sample

Table 6: Basic numeracy - whether respondents could calculate 15% of 200

  All Age 18 - 24 Age 55+
% answered correctly 84% 78% 91%
% answered incorrectly 16% 22% 9%

Base: full survey sample



Arrow Global Limited is registered in England and Wales with company number 05606545. Its registered office is at Belvedere, 12 Booth Street, Manchester M2 4AW. Arrow Global Limited ("AGL") is authorised and regulated by the Financial Conduct Authority for certain credit-related regulated activities, and is part of the Arrow Global Group. AGL is registered on the Financial Services Register under registration number 718754.