The new generation of credit users
The last twelve months has taken its toll on our finances, but those aged 18-34 have had to adjust their finances significantly and have also put themselves at risk to extra fees and interest charges by using expensive forms of credit, according to research from MoneySupermarket.com.
The comparison site asked respondents about different areas of their finances including credit, overdrafts, loans and savings, and found some good news and bad! Over one in ten 18-34 year olds (11 per cent) admitted they have had to use a credit card to make cash withdrawals (compared with eight per cent of the UK), seven per cent said they had taken out a pay day loan (up from the four per cent UK average), and one in six (15 per cent) had used an unauthorised overdraft (UK average of seven per cent) - all of which risk high fees and interest charges.
Credit crunchers
Over the past year, six per cent of 18-34 year olds with credit have had to use their credit card or overdraft for the first time to tide them over.
Nearly one in five (19 per cent) of 18-34 year olds with credit said their budget has been squeezed so are relying on credit more this year, above the UK average (12 per cent). Other reasons for using credit in the past year include those who have had lots of extra payments (13 per cent of 18-34 year olds).
Over a quarter (28 per cent) of all those in the UK with credit said they have used their credit card or overdraft as much as other years, while 13 per cent have used it less as they are more wary of using credit.
First time savers
It's not all bad news for the younger generation however, as when it comes to savings, in the past year a fifth (21 per cent) of 18-34 year olds who save said they have done so for the first time as they've either realised the importance of having savings or had more cash to spare (compared to 9 per cent in total for savers in the UK) and 24 per cent say they have saved more this year than last year.
When looking at the whole of the UK, over half (51 per cent) have put some money into a savings account in the past twelve months. A quarter of those Brits have been in a position to save more this year (22 per cent), and a third (33 per cent) have been able to save the same amount as the previous year. There were still a number who had not been able to save as much (28 per cent of savers).
Kevin Mountford, head of banking at MoneySupermarket said: "There is no doubt the last year has continued to drain on many people's finances, and those in their younger financial life cycle seem to be struggling the most. Many will have had to turn to credit in ways they haven't before, like using credit cards, overdrafts and payday loans - however this doesn't need to be a bad thing if used correctly. University students will be faced with sky high study loans this autumn, and many graduates in the 18-34 year old bracket will already be paying off their student debts.
"When used responsibly, credit can be a good thing and can be an effective way for people to manage their finances. Using a credit card for everyday expenditure but then paying it off in full at the end of the month, for example, would not cost a penny in interest, and there are cards specifically designed for purchasing, such as the Tesco Clubcard Credit Card for purchases charges zero per cent on interest for sixteen months with an APR of 16.9 per cent allowing you to spread the cost of larger purchases over the length of the deal.
"It's essential those using credit are clued up on all the payments and charges involved when relying on a credit card or overdraft- research your options. It's worrying that such a high number of those aged 18-34 have been tempted to use an unauthorised overdraft or credit card for cash withdrawals- the charges and fees for doing so can be sky high. It is also essential to avoid missing or making a late payment, which could be a costly move and vitally, could damage your credit rating making it more difficult to access other financial products in the future.
"It is not all doom and gloom however; despite a difficult financial backdrop over the last twelve months, one in two Brits have been able to put money into a savings account- vital for a rainy day emergency fund. Many young people have also realised the importance of having savings in place for the first time. Spending a few minutes to check through all outgoings, in order to work out where savings can be made can help add to the savings pot- putting away just £10 a week could make a real difference twelve months down the line."