Debt Among Young Adults: Navigating Financial Challenges

Debt isn’t just a concern for older generations. In fact, young adults aged 18 to 24 are increasingly facing significant financial challenges, accumulating considerable debt even while attempting to adhere to budgets.

A recent study involving over 2,000 participants aged 18 to 24 revealed that a staggering 37% are currently in debt, with an average amount of £2,989 owed (excluding student loans and mortgages). More than half of young adults under 25 express regular anxiety about their financial situations, with one in five losing sleep over these worries. This debt primarily stems from credit cards, overdrafts, and personal loans, with 16% possessing one or more credit cards (averaging £856 in debt), 15% using an overdraft (averaging £1,180 overdrawn), and 12% indebted to family or friends (owing an average of £4,644). Including student loans, the average balance stands at an alarming £25,505.

About 69% of young adults are actively working to manage their finances and adhere to a budget, with 71% checking their online bank accounts at least weekly. However, just over one in four are aware of their credit ratings and the implications of these scores. Furthermore, 42% report that they find managing their finances more challenging than anticipated.

Effective Strategies for Teaching Children and Young Adults About Money Management

Instilling financial literacy in children and young adults is crucial, and it doesn’t have to be a daunting task. Engaging children with money from an early age can lead to better financial decisions in adulthood. Often, financial education is not consistently covered in schools, placing the onus on parents to guide their children.

Financial Foundations for Younger Children

Encourage younger children to explore money by allowing them to physically handle coins and engage in play activities like setting up a shop. As they progress to school age, introduce saving for small items, such as a new toy, and give them opportunities to manage a small shopping budget. This is also an excellent time to begin discussing the concept of pocket money, helping them understand the value of saving and spending.

Building Financial Responsibility in Teenagers

As children transition into their teenage years, it’s important to gradually increase their financial responsibilities. Set a positive example by demonstrating responsible spending and savings practices. Help them learn to manage their own earnings, irrespective of how small they may be, fostering a sense of accountability for their financial choices.

Essential Financial Tips for All Age Groups

• Engage in open conversations about money around them
• Involve them in shopping trips to illustrate the value of purchases
• Teach them the importance of comparing prices and shopping smart
• Encourage them to review receipts to understand spending
• Allow them to handle cash and debit cards to build confidence
• Discuss various saving methods, from piggy banks to bank accounts
• Encourage regular counting of their money to enhance numerical skills
• Allow them to take calculated risks to understand the value of money
• Plan a day out where they can budget for expenses, sticking to a limit
• Provide opportunities for them to earn by assisting with household chores
• Help them grasp that virtual money spent online is still real money
• As they mature, encourage them to seek part-time employment

Understanding the Concept of Money for Kids, Students, and Young Adults

Money holds significant value for everyone, and it’s essential for children and young adults to develop an appreciation for its importance. However, the concept of money varies by age group, and lessons should be tailored to be age-appropriate, ensuring they grasp its relevance from a young age.

Introducing Money to Children Aged 3 – 5

Let young children explore coins and encourage them to keep a piggy bank as a fun way to start learning about money.

Teaching Financial Concepts to Children Aged 5 – 10

At this stage, it’s important to introduce the value of money through simple tasks that allow them to earn money. This empowers them to make decisions about whether to spend or save, teaching them about the purchasing power of their earnings.

Financial Guidance for Children Aged 10 – 16

Providing a regular allowance, either weekly or monthly, helps teenagers learn to budget until their next payday. Teach them to account for basic expenses, treats, and savings. This is also a great time to introduce household bills, illustrating the costs associated with daily living, like energy usage.

Empowering Young Adults Aged 16 and Over with Financial Knowledge

This pivotal stage in a young person’s life demands a solid understanding of financial principles. As they open their first bank accounts and earn their income, they should learn about budgeting, saving, pensions, credit, significant purchases, and investment opportunities. It’s vital for them to distinguish between necessary spending and saving for their future. Involve them in financial discussions and decisions, guiding them through the process of shopping for insurances and understanding student loans or renting properties.

Practical Ways for Young Kids to Earn Money

There is a wide range of household tasks that children can undertake from a young age to earn money.

Tasks for Little Children

Encourage them to tidy up their toys and make their beds.

Tasks for Young Children

Young children enjoy imitating adults with cleaning tools. Provide them with safe, real cleaning implements to engage them in household chores. They can also assist in selling old toys online, allowing them to reinvest the proceeds into something new.

Responsibilities for Older Children

As they grow, older children can take on weekly tasks such as washing the car or mowing the lawn. These responsibilities will help them experience the work ethic and the rewarding feeling of earning money. They may also consider paper rounds or part-time jobs, which introduce them to the workforce.

Opportunities for Students to Earn Money

University students can balance their studies with various job opportunities. Traditional roles like bartending or waiting tables can support their finances. Additionally, the gig economy offers flexible work options. For instance, if you possess a bike and a smartphone, consider becoming an online delivery driver for services like Deliveroo. Writing and publishing a Kindle eBook can also generate income, with self-publishing on platforms like Amazon allowing authors to earn up to 70% of the sale price. Cashback sites offer a way to save and earn money, providing commissions on purchases made online. Selling used textbooks on Amazon Marketplace or around campus is another viable option. Students can even explore opportunities in the entertainment industry as extras in films or television and earn up to £80 per day. Becoming a tutor can also be a rewarding way to share knowledge and earn money. Finally, consider selling pre-loved clothing on eBay to fund a wardrobe refresh.

Effective Money-Saving Strategies for Students

To maintain control over finances during your time at university, creating a budget and adhering to it is crucial. While occasional reliance on a student overdraft may be necessary, ensure you opt for a 0% interest rate and select a student-friendly banking account. Monitor mobile usage to avoid unexpected charges, and focus on securing a good deal while utilizing free Wi-Fi whenever possible. Remember, your student years should not be marred by debt; experience life simply and affordably, ensuring your rent and lifestyle are manageable without resorting to credit cards. Take advantage of student discounts and special offers whenever possible.

Pragmatic Money Management for Students

Effectively managing money during your studies involves maximizing your student loan, budgeting wisely, and ensuring you don’t run out of funds. Calculate your total income, including your student loan, any grants or bursaries, parental support, and savings from summer jobs or part-time work. Subtract necessary expenses like tuition fees, rent, and household bills, including insurance, transportation, phone, and grocery costs. Assess what remains for discretionary spending on food, clothing, activities, and educational materials. To stretch your budget further, consider these strategies:

• Check eligibility for free prescriptions under the NHS low-income scheme
• Utilize your NUS card to access student discounts
• Invest in a 16-25 rail card to save one-third on train fares
• Use comparison websites to secure the best deals and reduce shared accommodation costs
• Select the best bank for your student account

Integrating Financial Education into School Curriculums

Since 2014, financial literacy has been a part of the National Curriculum; however, less than 10% of young individuals feel they learned about money management in school, with nearly 20% claiming to be self-taught. Only 8% of young people reported learning the most about money skills in school, while 17% indicated they taught themselves.

The London Institute of Banking & Finance (LIBF) conducted a survey revealing that over 80% of young people desire more financial education in schools. While financial topics are included in citizenship lessons for secondary school students, academies may not adhere to this requirement. Often, financial concepts are integrated into other subjects, but many students prefer dedicated lessons on financial topics, with two-thirds expressing interest in learning more about student loans. The LIBF discovered that nearly 90% of young individuals want to explore credit cards, mortgages, and pensions, and over three-quarters lack understanding of taxation.

Implementing Money Management Education in Schools

Since September 2014, financial education has been a mandatory component of England’s secondary school curriculum. Students are taught about budgeting, borrowing, and the realities of credit cards, student loans, and taxation. Establishing a strong foundation in financial basics at a young age is essential for understanding various aspects of money management and developing a deeper awareness of financial literacy. Secondary school students learn about money in Mathematics and Citizenship classes, with each school determining the best approach.

Recommended Books for Teaching Kids About Money

• All About Money – Authors: Margarita Brown, Isaac Joshua Brown, Anna Kidalova, and Sarah Brown – A workbook designed to help children grasp concepts related to money, taxes, and the economy.
• Spend It! (Money Bunnies) – Author: Cinders McLeod. Aimed at younger readers, this book assists in understanding when and why to spend.
• Managing Your Money – Authors: Jane Bingham, Holly Bathie, Nancy Leschnikoff, and Freya Harrison. A comprehensive guide for teenagers covering topics from student loans to online banking and credit cards.
• Adventures in Finance with Bull & Bear: Saving for the Beach – Authors: Roy and Susan Kim. Follow Bull and Bear as they save and spend towards their beach adventure.
• The Know-Nonsense Guide to Money: An Awesomely Fun Guide to the World of Finance! – Author: Heidi Fiedler. Explores all aspects of money, saving, spending, and even cryptocurrency.
• The Lemonade War – Author: Jacqueline Davies. A story of lemonade stand wars, intertwined with marketing tips and business terminology.
• The Meaningful Money Handbook – Author: Pete Matthew. A personal finance handbook containing essential information for managing finances.
• The Year of Less – Author: Cait Flanders. Chronicles the author’s year-long shopping ban and the insights gained from that experience.
• The DIY Investor – Author: Andy Bell. A beginner’s guide to investment.
• Young and Mighty – Author: Henry Patterson. This 13-year-old author guides young people through entrepreneurship.

Understanding Young Adult Spending Habits

Teenagers contribute a remarkable £1.7 billion to the UK economy, with over 80% of that expenditure focused on gaming, socializing, and fashion, averaging £54 spent weekly. Research involving 2,000 young individuals aged 13 to 19 demonstrates that they tend to spend 60% of their income and save 40% for larger purchases, such as holidays. They often display surprising financial savvy, utilizing platforms like eBay for second-hand items, promoting sustainability. Over 80% of young adults manage to save some funds each month.

Loan Options Available for Young Adults

Young adults can begin applying for personal loans at the age of 18; however, securing low-interest rates may prove challenging. Certain loan offers are exclusively available to individuals aged 21 or older. All loan applications necessitate UK residency and sufficient income to cover monthly payments.

During the application process, your credit rating will be assessed, which can lead to higher interest rates for first-time borrowers.

Additionally, young adults may qualify for student finance, guarantor loans (where a family member agrees to cover payments in case of default), or car financing options.

A Guide to Personal Loans for Young Adults

Personal loans designed for young adults can facilitate significant purchases, such as acquiring a car. These loans are typically unsecured, meaning they are not tied to any property, and may come with higher interest rates but carry less financial risk. Carefully consider the amount you wish to borrow and ensure that the repayment terms align with your budget.

Loan Options for Young Adults with No Credit History

To qualify for a loan, individuals must be at least 18 years old; first-time borrowers often encounter elevated interest rates due to their lack of credit history. You can check your credit rating with various agencies to identify opportunities for improving your score and potentially lowering your interest rates.

Loan Solutions for Young Adults with Poor Credit Ratings

If you are a young adult seeking a loan but possess a subpar credit rating, you might explore guarantor loans. These loans allow individuals with poor credit to partner with friends or family who will co-sign, sharing the responsibility of the loan. Should you default on payments, your guarantor is legally obligated to cover the costs.

Home Loan Options for Young Adults

Finding the right home loan as a young adult may require extensive research, as many lenders prefer applicants aged 21 and above, with few considering 18-year-olds. It’s essential to evaluate your ability to comfortably manage repayments, as this is a critical factor lenders assess during the application process.

Business Loan Opportunities for Young Adults

Young adults have access to various business loan options, such as the Prince’s Trust Enterprise Charity Programme, which offers loans up to £5,000 for individuals aged 18 to 30 who are not enrolled in full-time education. The government’s New Enterprise Allowance Scheme provides a weekly allowance of up to £1,274 for 26 weeks, alongside a loan for startup costs repayable over five years. Additionally, the government’s Start Up Loan Company allows new businesses to borrow up to £25,000 at a fixed interest rate of 6%, with a year of deferred repayments before beginning repayment over one to five years.

Young entrepreneurs can also approach banks and other financial institutions to apply for more traditional business loans, especially if they have family or friends willing to act as guarantors.

Debt Consolidation Solutions Tailored for Young Adults

Debt consolidation loans designed for young adults enable them to consolidate multiple debts into a single loan, simplifying repayment through one monthly payment to a single lender. This strategy can be particularly beneficial for managing credit card debt and personal loans. Young adults may find unsecured consolidation loans appealing, as these do not require home ownership to qualify.