Too often parents do not prioritise financial literacy when raising their children, and most of the time, this valuable knowledge isn’t taught in schools either. This lack of financial education means that many young adults find themselves feeling lost when attempting to navigate the adult world and manage their own money for the first time.
Regardless of whether a young person chooses to attend university, begin full-time work or take some time to travel and see the world, having a solid financial plan in place will be vital to their future success.
Credit Card Trap
Leaving school, moving away from home and studying can be incredibly exciting for a young person. However, it’s a time when many find themselves falling into a lifelong habit of living on credit and being trapped in debt.
I was one of the lucky ones. From an early age, my parents actively discouraged me from taking out a credit card and this continued into my university experience. Others were not as fortunate.
To many young people, the idea of taking out a credit card sounds fantastic. They can buy things now and pay for them later. Credit cards might be presented as a simple way to ease the financial strain of university costs: tuition, books, living expenses, etc. In addition, they’re told that using a credit card can actually improve their credit score. What’s not to love?
However, in spite of all these apparent positives, credit card debt is a serious problem, afflicting more than 37% of young people in the UK, with that figure increasing to 67% when factors such as mortgages and student loans are considered. It’s estimated that, on average, each young person between the ages of 18-24 owes £2,989, and a third of them have no plan for paying it off.
Debt and loan repayment problems aren’t limited only to those who move into further education; financial problems can affect all young people. Whether studying, caring for family members, or working full-time, many 18-24-year-olds find themselves over-indebted. Among those responsible for paying household bills, one in ten young people have missed one or more of their payments, and the same percentage have missed loan repayments.
Where to Get Help
While it’s clear that debt is an important issue for 18–24-year-olds, they may not know where to go for help with personal finances and budgeting. As many as 67% of young people ask their parents for financial advice, with only 2% approaching professional organisations that provide money or debt advice.
Whilst relying on parental advice is the easiest option, it may not always be the best; Often, parents are products of the same lack of financial education. They can’t teach their children what they don’t understand themselves.
Financial Concepts for Young People
The good news is that young people don’t have to struggle financially as they enter into adulthood. With a bit of financial education, they can learn the basic concepts of money management that will stand them in good stead throughout their lives and break the cycle of financial illiteracy.
Below are some basic skills that all young people should master
BUDGETING – Before you can begin your financial plan, you must know how much you are earning, how much you are spending, and what you are spending it on. You can use our Genistar budgeting form which we call the Fat Finder because it helps you identify the ‘fat’ or excess in your spending.
FINANCIAL GOAL SETTING – Setting financial goals helps you focus and gives you direction. A goal without a plan is just a wish, so identify your goal, then plan the steps you will take to reach it. Plot them on a chart so you can track your progress. Read: Goal Setting in 8 Easy Steps.
GET OUT OF DEBT – It’s easy to let your debt get out of control, but with a bit of knowledge and a plan, you can conquer it. Ask your Genistar representative to show you the fastest way to accelerate your debt with the free Financial Game Plan Debt Accelerator. Read: Tips for Living Below Your Means.
BEGIN INVESTING – Investing is another behaviour that is best started early. Investing at a young age allows the money to grow and compound over time. If a 20-year-old invests £100 per month (in a retirement fund at 4% compound interest), at age 67 they would have £166,000.* If a 40-year-old invests the same amount per month at the same interest rate, at age 67 they would have only £58,200.* If you would like to find out more about compound interest and how it works, please refer to Invest £100 per Month for Retirement.
INSURE WHAT’S IMPORTANT – Make sure the things that are most important to you are covered: your life, your health, your home…
For a young person with no previous experience, money management may seem daunting. However, the concepts are easy to master, and the sooner good financial habits are established, the better.
If you would like help with getting started, contact your Genistar representative. Genistar offers a complimentary Financial Game Plan to all of our clients and their families to help you begin your journey towards financial freedom.
*Note: These figures are based on the following assumptions: The money is invested in a retirement account at 4% return and doesn’t account for taxes and other fees.