One in six young adults admits their debt has ‘spiralled out of control’
Young people are making money mistakes in their first years of adulthood - which impact their lives for years to come according to the Money Advice Service. The research, among adults in their twenties, revealed that three-quarters (72%) admitted to money mistakes in their first years of financial independence which they now regret. The findings come as the Money Advice Service releases a new report entitled ‘It’s time to talk: young people and money regrets’ which investigates poor financial decisions many have made in the first years of adulthood.
The Power of 18
Getting access to credit for the first time at the age of 18 leads many people to spend excessively and take risks, pushing them into a financial quagmire at the start of their adult life. Twenty-two per cent said they spent too much on credit cards, with 15% saying their debt spiralled out of control. Worryingly, 10% admitted that they had taken out high-interest credit, such as payday loans or ‘doorstep lending’, and 36% said they ‘used their overdraft as if it was their own money’.
The lure of ‘splashing out’
Larger purchases caught many young adults out. One in ten (9%) moved into a flat or house they couldn’t afford while seven per cent bought a car which was beyond their means. Over a quarter (27%) said they spent too much on holidays.
The study suggests that the naivety of early adulthood is causing many to get into difficulty. Of those that admitted to making money mistakes, 60% aged 26-29 said their biggest money mistake happened between the ages of 18 and 22.
It’s good to talk
Although 32% said they received no advice to help them through their financial mistakes, 40% were able to turn to their parents and 19% talked to other family members. One in five (20%) were also able to speak with friends their own age for support, although the report findings suggest they may not have the experience needed to give useful advice.
A quarter (25%) said that speaking to someone a bit older, who had been through a similar experience, might have prevented them from making the mistake, highlighting the fact that those who have made money mistakes at a young age could make good ‘money mentors’ for younger peers.
The bank of Mum and Dad
Of those who made financial mistakes, 42% borrowed money from their parents or friends, while more than one in ten (11%) were forced to move back in with their parents. A third (33%) had to use their own savings to rectify the mistake. The findings of the report suggest many young adults see their parents as an unlimited source of funds who will always be there to ‘bail them out’ in the event of a money crisis.
The wider impact of financial mistakes
The impact amongst those who had made money mistakes was more than just financial; nearly half (47%) admitted to feeling ‘depressed’, 28% couldn’t afford everyday essentials such as food or transport costs and 20% could not afford to pay bills. Twenty-seven per cent were also left with a poor credit rating and a quarter (25%) said it impacted their relationship with their friends and family.
Responding to the findings, Kirsty Bowman-Vaughan, Young People Policy Manager at the Money Advice Service comments:
“It is so easy to get into financial difficulties when you are young and not aware of all the risks of credit. You suddenly see all these letters from banks offering you a big overdraft or a credit card and it can seem like you have hit the jackpot. But of course the reality is you don’t actually have any more cash at all – simply lots of ways to get into debt.
“Most of us make mistakes soon after we turn eighteen and develop a ‘spend today, worry about it tomorrow’ attitude which isn’t sustainable. I would urge anyone in the early years of adulthood to get into the practice of living within their means. Any credit you take out now not only needs paying back, but paying back with interest, so you are losing out in the long run.
“Parents should also speak to their children about the dangers of unmanageable debt – this is because the attitudes we form towards money in our earlier years tends to impact habits for the rest of our lives. The knowledge and experience of those a little older can be a more realistic and comfortable conversation – and a good alternative to parents to turn to.
“We have a great young people’s hub on our website which offers a wealth of advice and tips on how to manage credit and debt sensibly, budget your money, or get help if you need it. We also have a new ‘Wishfund Savings Goal’ app which demonstrates just how rewarding it can be to save up for something you really want – an invaluable life lesson. Details can be found at moneyadviceservice.org.uk.”