The use of small instant loans among young adults – a gateway to a consumer insolvency?

Abstract

The aim of this paper is to study 18‐ to 29‐year‐old Finnish consumers' use of instant small loans (i.e. SMS loan) and other consumer credit services that have increased notably in the past few years. We examine what kind of expenditures instant credit is used for and focus also on young consumers' financial situation and their perceptions of themselves as money handlers. The research method is quantitative, and data are derived from an open online survey (n = 1610). Our results reveal that consumer credit is used by young people in all income brackets and employment positions. However, there is a clear connection between certain life‐course stages (young, single parent), financial positions (low income), employment situations (marginal) and the propensity to take instant loans and consumer credit. The young people who take an instant loan once are likely to do it again. Typical purposes of use included buying alcohol, cigarettes and partying. For some consumers, the use of small loans is part of controlled and economical use of money. However, particularly in the low‐income brackets, it is also common to buy food and to repay credit or interest. Young people, who use instant loans recognize flaws in their money management and see themselves as ‘wasteful’ consumers more often than those who do not use instant loans. On the basis of this empirical study, it is unquestioned that young people's consumer education needs to be strengthened. In Finland, this need has already been recognized in both consumer policy and teacher education.

Credit use: Psychological perspectives on a multifaceted phenomenon

“…The UK Survey of Low Income Families also finds that low‐income households are particularly likely to combine different sources of credit (Bridges & Disney, 2004). This fits well with the finding that young Finnish people who have low incomes, marginal employment or are single parents are particularly likely to use so‐called instant small loans that can be applied for by short message service or through the internet (Autio, Wilska, Kaartinen, & Lahteenmaa, 2009). Because it influences credit availability, home ownership seems to moderate the relation between income and credit source.…”

Young adults’ attitudes towards credit

“…Stafford-Smith and Mackey, 1989;Brobeck, 1991;Chen and Volpe, 1998;Consumer Federation of America, 1999;Fédération des ACEF du Québec (FACEF), 2001;Mandell, 2001;Lachance et al, 2006;Lusardi et al, 2009]. Studies on young people's personal finance practices look particularly at the number and use of credit cards and other credit products, including payment habits (Consumer Federation of America, 1999;Lachance et al, 2006;Autio et al, 2009). Such studies rarely look at the number, the nature and the amount of young people's debts (Lachance et al, 2005).…”

Debt problems, home‐leaving, and boomeranging: A register‐based perspective on economic consequences of moving away from parental home

“…Although social and financial support from parents is common at this age (e.g., Brandt & Deindl, 2013;Majamaa, 2013;Ranta, Chow, & Salmela-Aro, 2013;Swartz et al, 2011), extended and risky opportunities become also available via consumer credit (Autio et al, 2009;Lachance, 2012). Although social and financial support from parents is common at this age (e.g., Brandt & Deindl, 2013;Majamaa, 2013;Ranta, Chow, & Salmela-Aro, 2013;Swartz et al, 2011), extended and risky opportunities become also available via consumer credit (Autio et al, 2009;Lachance, 2012).…”

“…Different life events may direct behavior dramatically during this period, as young people explore various possibilities and learn financial independence and management. Although social and financial support from parents is common at this age (e.g., Brandt & Deindl, 2013;Majamaa, 2013;Ranta, Chow, & Salmela-Aro, 2013;Swartz et al, 2011), extended and risky opportunities become also available via consumer credit (Autio et al, 2009;Lachance, 2012). At this point, especially informal control via social institutions, such as school or family, might be important factors that buffer against potential economic risks taken at young age (cf.…”