According to a recent report from The Icelandic Debtors’ Ombudsman, the number of young people looking to get assistance to be bailed out of personal loans has been dangerously increasing in the past few years.
The Icelandic Debtors’ Ombudsman is a governmental institution that offers support to individuals who have difficulties meeting their financial obligations. Their report shows that young people are increasingly looking for financial help in the form of small loans, getting involved in debts that are harder to pay off.
In fact, because small loans provide individuals with such low amounts of money, not only does the debt need to be paid back within one or two months, but the interest on that money is also rather high. If an individual is in financial trouble, it can therefore become difficult to pay off the debt on time.
Small loans, big problems
Since 2013, the Ombudsman has recorded a steep increase in the percentage of individuals looking for counsel or applying for debt mitigation to pay off small loans. In 2013, only 13% of small loans recipients applied for debt mitigation; in 2017, those numbers went up to 43%. At the same time, the number of individuals looking for bailouts of housing loans went from 17% to 45%. What particularly worries the institution, however, is that the most striking increase has been recorded among individuals between 18 and 29 years of age, namely from 14.9% to 23.2%.
For Ásta Sigrún Helgadóttir, the Chief of The Debtors’ Ombudsman, it is necessary to look at this problem from an educational point of view. “We are really worried about these developments and the influence that small loans are having on young people’s personal finances,” she explains. “We need to strengthen the financial education of students in primary and secondary schools in Iceland. As loans become more accessible to young people, it’s important that people who take on these loans are well-informed about the costs and consequences when they aren’t able to pay.”
A swift response
A surprisingly swift response has since been issued by the Ministry of Education, Science and Culture, which plans to include questions on financial literacy in the next PISA test scheduled for 2021, where students under 15 years of age around the world are required to answer questions of reading comprehension, science and mathematics, in order to test and compare different educational systems. By doing so, the Ministry of Education hopes to increase young people’s knowledge of finance, economics and especially loan services.