Socioeconomic background of parents influences young people’s payment difficulties

Researchers have examined registry data for young Norwegians born between 1995 and 1997.

They looked for - and found - correlations between the socioeconomic background of parents and young people’s mental illness and payment difficulties.

“Children whose socioeconomic conditions were poorer are more likely to end up in financial difficulties,” says Åsmund Hermansen.

Together with the researchers Aapo Hiilamo and Maria Reinholdt Jensen, Hermansen has discovered that the socioeconomic background of Norwegian parents can reinforce the correlation between mental illness and payment difficulties.

“If your parents have a low income and low levels of education, this will increase the probability of you ending up experiencing payment difficulties,” says Hiilamo.

What do parents have to do with this?

“The fact that parents are a factor when it comes to the probability of young people experiencing payment difficulties is not really all that surprising,” Hermansen says.

Norwegian parents with resources help their children out. They simply cover bills if difficulties arise.
“Knowledge of how to manage finances is also passed down,” he says.

Parents with good finances ensure that their children learn to manage their own finances to a greater extent than parents with limited resources. 

People whose finances are tight may make less rational choices

“People whose finances are tight also show a clear tendency to make less rational choices, due to stress," explains Maria Reinholdt Jensen.

Debt can quickly become a self-reinforcing process in which easily accessible loans are taken out to service other debt.

“This becomes a process in which young people are marginalised,” says Hermansen.

Young people with mental health issues often get better help if their parents are advantaged.

“These young adults often also receive better treatment for mental illness, as their parents can cover the costs,” Hiilamo says. 

Many people struggle with payment difficulties

• Figures from 2009-2020 show that 560,000 Norwegians are subject to an attachment of earnings in their salary or benefits due to unsecured debts or overdue bills they are unable to pay. 
• If we exclude everyone under the age of 18, this indicates that more than 10 per cent of the Norwegian population experience debt problems. 

Source: Registry data from the Central Coordinating Register for Legal Entities/Brønnøysund.

“If you hail from a poorer background, the risk of developing mental illness is also increased,” says Jensen. 

Research has already proven the correlation between mental illness and payment difficulties.

“The socioeconomic background of parents can influence the correlation between mental illness and payment difficulties,” says Jensen.

Advantaged parents can support young people who struggle with mental illness and help young people manage their payment difficulties. 

More men experience payment difficulties

“We see this in many other countries too, but more young men experience payment difficulties,” says Hiilamo.

Hiilamo cannot say for certain why men are more likely to experience payment difficulties, but he believes that a willingness to take more risks may be one factor. 

Problems must persist long enough to get help

For those who do not have advantaged parents, help can be difficult to access. Hermansen feels that it is not easy for young people with financial difficulties to get help from the public sector.

“Those who are struggling with significant and extensive financial difficulties can apply for a debt settlement,” Hermansen says.

However, in order for this to be granted by the Enforcement Office, the individual must apply and debt negotiations will commence if the terms are met. This can be a long and difficult process.

“Your life will be in ruins before you get into a debt settlement agreement,” he says.

You must be “persistently unable” to service your debt in order for a debt settlement to be granted.

“In the meantime, advantaged parents simply swipe their card and solve the situation for their children,” Hermansen says. 

Borrowing money is too easy

“We do not have data on young people before the advent of the internet, but it is clear that today’s society facilitates impulsivity,” Hermansen says.

The researchers believe that it is too easy for young people today to borrow money.

“It has become normal to borrow money to buy something you really want. Not because you need it. And that is problematic,” says Jensen.

They note that it was previously harder to take out unsecured debt.

“Now, you can borrow NOK 5,000 from somewhere with relative ease. And that could be the start of greater payment difficulties if you need to borrow money from somewhere else to repay the NOK 5,000, plus interest,” Jensen adds.

Reference

Aapo Hiilamo, Maria Reinholdt Jensen and Åsmund Hermansen: Associations between adolescent psychiatric disorders and adulthood payment problems: a Norwegian register study of complete birth cohorts of 1995–1997 (bmj.com).