Lower age of credit to 16 to get economy moving
It isn't hard to see the financial devastation that Covid-19 has brought to our economy. The hardest hit has been the young who have seen their part-time employment prospects dry-up. Many are now turning to the bank of Mum and Dad for financial support. Lowering the borrowing age to 16 will help take pressure away from parents and turbo charge economic growth.
Why Lend To Under 16's?
Most people think that 16-year-olds are still in education. But they would be wrong to believe that they are ONLY in education. In a private 2018 survey, 47% of 16-year-olds reported having private income given to them by people other than their parents. This rose to 54% for 17-year-olds.
We don't have data for 2020 yet, but we would expect that the numbers of 16-17-year-olds who have some type of private income will be significantly lower. The financial black hole that faces these youngsters will fall on parents. But it doesn't have to.
What if Subprime Lenders filled the gap?
Banks are known for being risk-averse, so we wouldn't recommend the banks offered credit to 16-year-olds. On the other hand, Payday / Subprime lenders specialise in additional risk, could step in and take the weight from parents' shoulders.
Not only would lending to youngsters bring immediate financial relief to them and their families, it would also help the wider economy. Youngsters are the most likely to spend recreationally, and it is this sector of the economy that is in most need right now.
We propose a system where credit would be offered to 16/17-year-olds, but the repayments didn't start until the individual became 18. This should satisfy the concerns that the usual suspects will have about young adults being exploited by lenders.
Loans would also be limited for under 18's to a maximum of £2000, which would have the effect of mitigating any irresponsible financial behaviour.
Interest would also be capped at a reasonable 49.9%, much cheaper than subprime loans that are currently offered to many adults. Interest wouldn't start until the person turned 18 years old, which means that they would have up to 2 years at 0% APR.
Lenders we have spoken to said they would, in principle, welcome the rules being changed by the FCA to allow under 18's to access consumer credit. Quick Loans Spokesman Martin Bishop says "We believe that it is an exciting possible new area for growth. One where everyone would benefit, the public, the individual themselves, the family of the individuals. There is no downside to this going forward.".
There will be an argument that under 18's are not responsible enough for credit; this argument no longer holds water. Scottish and Welsh Governments allow 16-year-olds to vote. We listen to a 16-year-old world-renowned expert on global climate change. It's time we started giving credit where credit is due, which is now at the age of 16.
There could also be an argument that under 18's cannot make responsible assessments of their repayment affordability. There is some merit in that argument. But safeguards for that are already in place for over 18's. It's been more than seven years since the FCA decided that over 18's in the UK were no longer able to take responsibility for their own affordability assessments. That responsibility is now with lenders, not the applicant. Adult, non-adult, it makes no difference as the lender is the one who decides affordability.
We hope that others support us in making this happen. It's always better when the private sectors helps to fix social problems.