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Research by PayPlan recently found that young people in the UK are on average in debt of £6k-£9k. This varies depending on location. Also, this doesn’t include student loans and associated education payments.
That’s a considerable amount of debt to have accrued before reaching the age of 25. Many of those struggling with debt are classed as young professionals. They are all qualified and in employment.
Is it because of an ‘I want’ culture that leads people to seek impulsive purchases and no thought for saving?
Or, is there more to a young person’s debt problem?
Money is no longer tangible
Previous generations could watch as their money disappeared. It would be in cash form, collected in their purse or stored in jars at home. If they needed more money, they would go to the bank and withdraw it in coins and notes. It was clear when there was money available, and obvious when there wasn’t.
Nowadays, money isn’t visible:
Cards are the primary payment method, encouraged for their convenience.
In some places, it’s now almost frowned upon to pay for a purchase in cash. This means that young people can’t as easily see when and where their funds are going. This can have a dramatic impact on spending habits and budgeting abilities.
It is strongly recommended by some that people should use cash more. Withdrawing cash and splitting it up into envelopes to categorise what’s available.
Understandably, this can be a difficult habit to stick to. Particularly in a time when cards are the primary currency. Besides, many purchases are now made online.
There’s a lack of financial education
Finance management isn’t typically taught in schools. Most parents don’t pass this information on, either. Whilst older people might have grown up having a relationship with their bank manager. Most would at least regularly visit the bank so that they had some connection to it. Young people are less likely to do so.
With online banking and cheques almost extinct, many younger people never visit their bank!
This means that they receive no financial advice. Often they could take financial products without considering the alternatives.
Young professionals don’t have savings
Most young professionals take a well-trodden path. They leave school for university, where they’ll slowly move to becoming independent adults. From there, they’ll go out into the world of work and will be paying their own way. Whilst some have family support during these early years, there are also many that don’t.
The costs of university, and living away from the family home, mean that most young people start out without any savings. As a result, they’re completely unprepared for those emergency expenses and will resort to borrowing money to cover them.
Expenses are high
Rent levels are high throughout the UK. The cost of renting accommodation can take up 50% of a young person’s income. Usually a significantly higher percentage. This leaves little disposable income once other bills and essentials are taken care of.
Young people also struggle to get by without a car. Public transport services tend to be unreliable and overpriced. The costs of running a car can add to the financial burden. This can be particularly high for a young person with high insurance premiums.
On top of everything else, credit has arguably been too easy to get hold of in recent years.
The Financial Conduct Authority now has tighter regulations in place. The aim is to protect consumers from taking out loans and credit cards that they can’t afford.
Unfortunately, some young professionals will be experiencing the long-term consequences. Much less so than a decade ago.