How China mil­len­ni­als think about money

Kuwait Times - - ANALYSIS -

Ma Yiqing, 24, is typ­i­cal of China’s younger gen­er­a­tion - he uses his credit card fre­quently and bor­rows from on­line plat­forms to fund his shop­ping habits. In a pinch, he is happy to fall back on a lender closer to home - his mum and dad. In­ter­views with Ma, a sin­gle-child, his mother and grand­mother, show how rapidly at­ti­tudes to­wards credit are chang­ing as the mil­len­ni­als gen­er­a­tion - roughly those aged be­tween 18 and 35 - em­braces debt like never be­fore.

The fru­gal at­ti­tude of pre­vi­ous gen­er­a­tions pro­duced the bedrock of China’s credit wor­thi­ness - house­hold sav­ings equal to some 50 per­cent of GDP, one of the high­est lev­els glob­ally. Ma and his co­horts are chang­ing that equa­tion. Their will­ing­ness to bor­row has driven up house­hold lend­ing the fastest growing area of China’s debt. They are among the most in­debted of their peers in Asia, tak­ing on debt 18.5 times their in­come, sig­nif­i­cantly higher than their par­ents’ gen­er­a­tion, a re­port from in­surer Man­ulife shows.

While their spend­ing and bor­row­ing is an op­por­tu­nity for len­ders, brands and eco­nomic growth, it is also a risk as they add to China’s fast-growing debt. Right now, Ma has a safety net - well-heeled and dot­ing par­ents who can pick up the tab. He lives in a one-bed flat in Lhasa, the cap­i­tal of China’s Ti­bet re­gion. His par­ents are in nearby Shan­nan. “I’ll gen­er­ally turn to mum and dad. They’ve al­ways been able to help me fi­nan­cially,” said Ma. In May, he asked his par­ents for fi­nan­cial sup­port to open a res­tau­rant. “I just need to ask and they’ll give me (money).”

Par­ents pay­ing off the credit card bills of their mil­len­nial chil­dren is not un­usual in China, but it could have ram­i­fi­ca­tions, said Rui Yao, an as­so­ciate pro­fes­sor in per­sonal fi­nance at the Univer­sity of Mis­souri. “They don’t see the con­se­quences of not pay­ing. The think­ing is ‘my mom has it cov­ered’”, she said. “They’re not pre­pared for an eco­nomic down­turn for sure.”

The next gen­er­a­tions may not be so lucky ei­ther. They will have to sup­port longer-liv­ing par­ents and po­ten­tially more chil­dren as China re­laxes its one-child pol­icy. China’s age­ing pop­u­la­tion is al­ready shrink­ing, which means greater fi­nan­cial pres­sure on those work­ing to sup­port those who are not. Ma says he is more fru­gal than his friends. He uses his bank card and Ant Check Later, a pop­u­lar on­line lend­ing plat­form owned by tech gi­ant Alibaba Group Hold­ing Ltd.

This is a far cry from his par­ents’ gen­er­a­tion. Ma’s mother, who is 49, only started us­ing a credit card three years ago. “They couldn’t spend on overdraft, so they re­ally didn’t squan­der any money,” he said. The gap is clear: Con­sumer credit is up nearly 300 per­cent over the last six years alone, hit­ting around 23.5 tril­lion yuan ($3.41 tril­lion) in Oc­to­ber. This is set to more than dou­ble over the next five years to nearly 53 tril­lion yuan, ac­cord­ing to con­sul­tancy Min­tel.

While mort­gages are the lion’s share of house­hold debt, credit card and con­sumer loans have shot up from just 4.6 per­cent of house­hold debt in 2015 to 16 per­cent now, BMI Re­search shows. “The young gen­er­a­tion today has a to­tally dif­fer­ent at­ti­tude to my gen­er­a­tion,” said Ma’s grand­mother, Wei Chun­yin, 76. She grew up in the 1960s and said she was in debt just once - for 100 yuan, the equiv­a­lent today of $14.50. “We were very eco­nom­i­cal and hard­work­ing,” she said. “Cloth­ing was just to wear, and we wouldn’t even re­ally eat snacks, just food from our unit,” she said, re­fer­ring to her work­place.

Growing force

Ma’s gen­er­a­tion is the first in China’s mod­ern his­tory to be raised in rel­a­tive pros­per­ity and so­cial sta­bil­ity. They are bet­ter ed­u­cated and al­ready more af­flu­ent than their elders. Bos­ton Con­sult­ing Group and AliRe­search said they are ex­pected to drive 65 per­cent of con­sump­tion growth un­til 2020, when they will make up around 53 per­cent of to­tal con­sump­tion spend­ing, up from 45 per­cent now. “Un­der­stand­ing their mind­set is crit­i­cal and any­body ig­nores them at their peril,” Yum China Hold­ings Inc head Micky Pant said in an in­ter­view.

Their po­ten­tial has not been lost on the banks, with some specif­i­cally tar­get­ing them for loans. “In­ter­nally our ap­praisals are skewed to­wards the young con­sumer groups. For ex­am­ple, front­line sales staff get a bonus 1.3 times the nor­mal level if they sign a young cus­tomer,” said a banker in the credit card depart­ment of China Mer­chants Bank, a lead­ing credit card provider. “So ev­ery­one is out look­ing for young­ster to sign up.”

When asked about the strat­egy, CMB said it has many credit card prod­ucts that are wel­comed by young peo­ple. Bankers said len­ders of­ten know mil­len­ni­als have dot­ing par­ents to fall back on in a pinch. “Tak­ing a darker read on it, the par­ents of the post-90s gen­er­a­tion - who were born in the 60s or 70s - haven’t yet re­tired, and are fi­nan­cially pretty se­cure,” said a debt col­lec­tor in the credit card depart­ment of a listed city bank.

Like other par­ents in China, Ma’s mother and fa­ther, a nurse and gov­ern­ment of­fi­cer at the lo­cal Me­te­o­ro­log­i­cal Ad­min­is­tra­tion re­spec­tively, are re­signed to sup­port­ing their son fi­nan­cially for now - even if he de­faults. Ma’s mother, Zhen Yinchun, said that when she was young she saved around one-third of her in­come be­cause there was lit­tle to spend it on, in con­trast to her son. It is a run­ning joke in the fam­ily whether Ma will re­turn any money he has bor­rowed, she said. “I’ll say it’s a loan and he’ll agree. But up to now he’s never paid any­thing back,” she said. —Reuters

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