Be alert! The “Sulfuric Acid” Young Generation Digging, Pilling Up and Defaulting Debts

by Eko B. Supriyanto, Editor-in-Chief of Infobank

DON’T bite off more than you can chew, or by Indonesians we initiate it as “The peg is bigger than the pole”, meaning some people that shown a wasteful act, that is the bleak picture with the financial plan of today’s youth. What happen is, they usually spend first, pay later. Huge lavish spending styles, left them with many debts. A significant number of young people are already burying their future by accumulating deeper debts, regardless of their ability to repay.

Not all young people are the same, but there is a “sulfuric acid” generation – a generation that fails to comprehend the lethal danger of accumulating debts. The younger generation seems oblivious to the latent dangers that may impact their future.

As revealed by the Financial Services Authority (OJK), the number of young people entangled in debt is in-creasing day by day. The smooth path to debt lies through the “buy now pay later” (BNPL) products. The ease of technology and the ability of young people to access it serve as a toll-smoother road for digging deeper into debt.

The use of BNPL products is proliferating. According to data from Pefindo Credit Bureau, as of November 2023, the value of BNPL loans reached IDR 28.22 trillion. This figure represents a 16.99% year-on-year increase and a 25.98% increase from the previous month (October 2023).

Moreover, the number of new borrowers has also increase. Young people are drawn to BNPL products. From the distribution of accounts, it is observed that 45.16% of BNPL users are aged between 20-30 years. When considering borrowers’ locations, West Java contributes 24.93%, followed by DKI Jakarta at 14.5%, and East Java at 10.2%.

Breaking down the further data, according to Pefindo Credit Bureau, 5.31% of these transactions fall into the category of default or loans insolvency (galbay). However, this figure has improved by 0.35% compared to the previous month. In terms of age groups with the highest default rates (collectability status (KOL) 3+4+5), those aged >20-30 years account for 39.2%, followed by >30-40 years at 35.84%.

There are various reasons behind this rising tide of stagnant debts. These young people may be tempted by consumerist culture, desiring to appear affluent without understanding that loans must be repaid, even without collateral.

Simultaneously, online lenders bombard young people through social media. Almost every YouTube channel is filled with online lenders (pinjol) advertise-ments. The terms are lenient and straight-forward, with much content being misleading. A simple click, and the money is instantly available. Whether legal or illegal, all offer the convenience of loans, with little emphasis on the ability to repay.

According to OJK’s data, some BNPL borrowers have credit obligations amounting to 95% of their income. For instance, if a consumer earns IDR 10 million, IDR 9.5 million is allocated for debt repayment. Terrifying. Moreover, many of them have average loans ranging from IDR 300,000 to IDR 500,000, as per the same data.

Based on findings from Kompas’s R&D and KG Media’s 2022 Youth Aspiration Survey, 48% of youth acknowledge having financial challenges, and 20% express concern about their future financial situation. They cite employment and financial capabilities as the main factors influencing economic challenges and potential.

Well, if we talk about the delinquent loans of young people at 5.31%, it amounts to Rp1.12 trillion in nominal terms. The age group with the highest default rate is between 20-30 years old. This certainly raises concerns for Indonesia’s future.

This “sulfuric acid” generation of young people fails to grasp the meaning that debts must be repaid. If not resolved promptly, these young people will truly face civil death. They might end up in the blacklists of credit reporting agencies like SLIK-OJK, and their future looks bleak. They won’t be able to secure employment because banks and financial institutions do not accept debt defaulters. Additionally, they won’t qualify for mortgages, motorbike loans, or car loans.

In 2045, even if they eventually have money, they won’t be able to apply for loans to buy a house or any other financing facilities. There are even reports that young people in the SLIK database may struggle to secure formal employment, especially in financial institutions such as banks. A dismal future awaits those in the SLIK database, as they are “legally dead.”

Let’s hope that future presidents consider this issue, and politicians in the legislative assembly not only engage in seemingly beneficial financial literacy campaigns but also address whether this “sulfuric acid” debtor model needs protection.

The cool younger generation, is the generation that can wisely manage its finances. Not the “sulfuric acid” young generation that buries its own future by digging into debts, piling up debts to finance its lifestyle just to appear extravagant. (*)