How millennials are changing the way Chinese think about money

Source:Reuters Published: 2016/12/12 17:18:39

Meet the Mas

The Ma household, a single-child family in Southwest China's Tibet ­Autonomous Region, offers insight into how China's youth are changing the country's economy. The family's child, 24-year-old Ma Yiqing, borrows and spends freely, a departure from how his parents and grandparents treated money. Elder generations pushed China's household savings rate to roughly 50 percent of GDP, one of the highest in the world. As the country's leadership attempts to transform the economy to be more consumer-driven, it needs spendthrifts such as Ma. However, as China's debt levels have risen precariously over the last few years, it is becoming clear that consumer borrowing poses its own risks to economic stability.

Photo: CFP

Photo: CFP

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, Ma is happy to fall back on a lender closer to home - his mother and father.

Interviews with Ma, a single child, his mother and grandmother, show how rapidly attitudes toward 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.

Ma lives in a one-bedroom apartment in Lhasa, capital of Southwest China's Tibet Autonomous Region. His parents are in nearby Shannan Prefecture, about 200 kilometers away from Lhasa.

"I'll generally turn to mom and dad. They've always been able to help me financially," Ma said.

In May, he asked his parents for financial support to open a restaurant. "I just need to ask and they'll give me [money]."

Generation gap

It is not unusual in China that parents pay off the credit card bills of their millennial children, 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 population, which is aging, is already shrinking, which means greater financial pressure on those working to support those who are no longer employed.

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 domestic tech giant Alibaba Group Holding.

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 thrifty 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.

Targeting the youth

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 mind-set 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 toward 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.


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