The financial expectation of a ‘hopeful’ generation

NatWest has published the first report from the MoneySense Panel – the most extensive research project ever conducted in Britain, which focuses on young people and their financial attitudes and behaviours. The panel will track the financial outlook of 8,500 11-19 years olds over a five-year period, exploring their understanding of crucial financial issues, including earnings, budgeting, debt, and hopes and aspirations for their future finances.

The first ever findings paint a picture of a generation with highly optimistic expectations for their future finances. This ‘HOPEFUL’ generation predict high salaries and low student debt in their financial futures however, the young people surveyed also show a worrying lack of realism on issues such as property purchasing power and credit.

‘Hopeful Generation’: Home owning, Paid debts, Earning high

The NatWest research reveals that on average, young people expect to be earning an annual salary of £31,190 at the age of 25. This compares to the current average annual earnings of only £17,817 for 22-29 year olds in Great Britain. Furthermore, the research seems to demonstrate that a young person’s earning aspirations are to some extent determined by their own parents’ salaries. This contrast was starkly highlighted in the findings; young people from higher earning families optimistically expect to be earning an average of £35,507 at the age of 25. This contrasts with young people from lower socio-economic groups, who estimate significantly lower earnings of £22,848 on average.

Young people are similarly optimistic when it comes to predicting the age at which they would expect to buy a home: 4.1 million (59%)expect to own a house by the age of 25. The current average age of a first time buyer in the in Great Britain is 28 years old.

When it comes to student loans to cover university costs in the future, respondents were almost as likely to underestimate; 3.1 million (43%) young people believe that they will owe less than £10,000 in debt when they finish university. This comes at a time when the introduction of top-up fees has resulted in the average student having to repay £12,363 by the time they leave university. More than two-fifths (43%) young people also believe that they will have started to pay off their student debt while they are still studying or as soon as they leave university. Currently, students do not even start loan repayments until the April after graduation, and only then if they are earning an annual salary of £15,000.

Furthermore, the findings highlighted a lack of knowledge among young people on rates and loans. 5.3 million (76%) young people are unable to correctly identify the cheapest loan option from a list of four. As might be expected, young people from socio-economic group AB were more likely (27%) to correctly identify the cheapest loan option than those in the lower socio-economic groups (23%).

The findings also reveal that 1.5 million young people (22%) expect to have left home by the age of 18. The most recent figures indicate that 58% of men and 39% of women aged 20 to 24 in England live with their parents. The findings also revealed that 5 million (71%) 11-19 year-olds expect to own their own car by the age of 21.

Stephen Moir, RBSG’s Head of Community Investment, comments: “A ‘HOPEFUL’ generation of young people is not necessarily a bad thing however, a practical and realistic approach is crucial to equipping the next generation with the skills and knowledge they need to face the financial challenges ahead of them.

Ultimately, the more exposed young people are to financial issues, and the younger they become aware of them, the more likely they are to become responsible, forward-planning adults who manage their finances confidently and effectively.”

Attitudes to Debt

The research also revealed that future debt is a genuine cause for concern to young people, with well over half (61%) citing their concerns about debt in the future as something that worried them either a ‘little’ or ‘a lot’.

While the findings revealed that young people from socio-economic group AB are slightly less likely (59%) to worry about debt than those young people from lower socio-economic groups (61%), they are actually more likely to think that they will get into debt at some point in the future (27% compared to 25% respectively). Socio-economic group seems to have a more significant affect on the amount of debt that young people predict that they will be in at the age of 25 – young people in socio-economic groups AB predicted on average £23,070 more than those in socio-economic group C predicted £32,661, and those in groups DE predicted that they will have debt of £29,784 at the age of 25.

Regional Differences

The panel findings revealed some dramatic differences across the country in young people’s attitudes towards their future finances:

Young people in Cardiff on average expect to earn £38,126 at the age of 25. This compares to those in Manchester, who on average predict to be earning only £14,906 at the age of 25

Young people in Leicester are most optimistic about their future house purchasing power - 66% believe that they will own a house by the age of 25. Young people in Glasgow are the least optimistic, with 45% believing that they will own a house by the age of 25

Young people in Edinburgh are the most credit savvy, with 33% correctly identifying the cheapest APR loan option from a list of four. Only 13% of young people in Birmingham are able to correctly identify the cheapest APR

38% of young people in Edinburgh predict that they will not ever get into debt. 7% of young people in Portsmouth do not know what debt is