A depletion in savings over the past two years and the relatively high interest rates charged on personal loans have also contributed to the growing default risk for under 30s.

“Credit stress is now spilling over into social groups that are less economically stable,” said Hasseldine. “Younger people generally have lower savings, lower incomes, fewer assets, and limited employment experience.”

‘While the over 40s seem to be getting back on track, we’re seeing under 40s … struggling at an increasing rate.’

Barrett Hasseldine from illion

Trends in underemployment are another sign young Australians are being disproportionately affected as the economy slows in the face of higher interest rates. Job figures released last week showed youth underemployment has climbed from 14.8 per cent in March to 15.7 per cent in May.

That was 9 percentage points higher than the overall rate of underemployment last month which stood at 6.7 per cent (underemployment measures the share of employed people who want to work more hours).

A barometer of credit stress compiled by illion each quarter using banking and credit data from more than 18 million consumers shows default risks rose across the nation in the first three months of 2024 to be 9 per cent higher than at the start of 2022.

The illion report said elevated credit risk, especially among young Australians, coupled with subdued consumer confidence did not bode well for future consumer spending and “may point to a growing risk of recession” later in 2024.

“While the over 40s seem to be getting back on track with their financial situation, we’re seeing under 40s, and particularly the under 30s, struggling at an increasing rate,” said Hasseldine.

“That will start to take its toll as those individuals try to make ends meet by spending less ... a cycle could develop where consumers are reducing their spending, which then puts more pressure on companies and small local businesses, which in turn has an impact on employment, and so on. That’s something that we’re watching very closely.”

The report found default risk among personal loan consumers rose across the five most populated states during the March quarter.

Western Australia had the biggest rise in default risk for those with personal loans at 4 per cent, followed by NSW with a 3 per cent increase.

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