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Buy It Now, You’ll Pay For It Later: Why Bad Financial Habits Are Turning Millennials Into The ‘Bailout’ Generation

Why Aren’t More Young People Saving? 

Today’s young people are told that they should be putting around 15% of their salary into a pension. But when the current average salary for Millennials aged 20 to 24-years-old is £16,400 [1], according to HM Revenue & Customs, is there enough left to put into personal savings too? After paying tax, student loan repayments, the cost of living (assuming the average young person is renting) and paying into a pension, the average young person has approximately £231 a month to cover food, holidays, socializing and savings [2].

So when Millennials are bombarded with media that tells them to ‘choose what makes you happy’ and that lottery scratch cards statistically have a 1 in 4 chance and only ‘play makes it possible’, the prospect of saving some of that meager £231 in an ISA with a 1.05% return PA [3] doesn’t appeal to their desire for instant gratification.  

The Milennial Generation

72% of Millennials believe that happiness is indeed a choice [4], not chance, and they’re growing increasingly impatient waiting for it. Therefore they’re quenching their thirst for happiness by trying to buy it, only to discover that the fiscal and subsequent emotional cost of it doesn’t always provide the return on investment they were expecting. “When you’re doing it with the motivation or expectation that these things ought to make you happy, that can often lead to disappointment.” Yale psychologist Jane Gruber on the negative outcomes of seeking self-help happiness.

Furthermore, a 2015 analysis of data from the Office for National Statistics’ Wealth and Assets Survey highlighted that, for Britons aged 16 and over, there is a clear link between household wealth and happiness, life satisfaction and personal sense of worth. It’s a potentially damaging state of mind for a generation; believing that happiness can be attained through the tap of a credit card. So who, or what, is to blame for their need for instant happiness? And more importantly, how are they paying for it?

Teaching Millennials About Money

Should we blame the parents?

When discussing the negative traits of adolescents the finger of blame is often pointed at their parents, and in this case there may be a degree of accuracy in that. A Parents, Kids & Money survey, which sampled 1,086 parents of 8 to 14 year olds and their children, highlighted some surprising results:

Most parents have some reluctance to discuss financial matters with their children: 71% of parents have at least some reluctance to discuss financial matters with their children, while 29% are very or extremely reluctant.

Nearly as many parents are uncomfortable discussing family finances as they are discussing death: 58% of parents said they have some discomfort discussing family finances with their children. Only slightly more (59%) said they have some discomfort discussing death with them.

Household expenses

Parents are not always using emergency funds for emergencies: 55% of parents have used their emergency funds to cover non-emergencies, including day-to-day expenses (24%), paying off debt (22%), children’s education (20%), and childcare (13%).

And children expect their parents to buy them what they want: 57% of children agree with the statement, "I expect my parents to buy me what I want."

The study ultimately makes the argument that Millennials’ attitudes towards their finances are the product of a reliance on the ‘bank of mum and dad’. Also, as parents are still who three-quarters of Millennials turn to for financial advice, it’s disconcerting to know that bad financial habits are being passed from parent to child like family heirlooms.

Furthermore, the same study highlighted that 46% of parents have gone into debt to pay for something their children wanted and 9% of parents have pay day loans as a result.

Herein lies a problem: a generation with a hunger for instant gratification are stepping forth into a world with ill-advised notions about credit and savings, with an added expectation to be ‘bailed out’ by you, their parents, should the worst occur. Their poor decisions about their finances may start out as a small problem, however, over time they can gain momentum and increase in severity to become destructive financial habits.

Family Financial Planning

Practicing What You Preach

The stats might seem bleak about Millennials’ financial habits, but the cause of the problem is also the solution. As parents, it is your responsibility to educate them with a more robust understanding of the financial options available, to help them plan for their future.  A report by researchers at the University of Cambridge commissioned by the UK’s Money Advice Service revealed that children’s money habits are formed by age 7. So it’s never too early to begin educating your children about the importance of savings.

Whilst the Parents, Kids & Money survey highlighted that 71% of parents have at least some reluctance to discuss financial matters with their children, having tough conversations with children is part of being a parent and money can be a subject many find particularly hard to cover, especially if it is an area which you struggle with yourself. One of the key reasons for many parents is that they feel children shouldn’t be burdened with adult responsibilities, like worries about money. But it can in fact be very empowering to give your children skills and confidence with money, so that they don’t have to face money worries in the future

Money For Kids

The 4 Most Important Money Lessons To Teach Your Children

  1.  They may have to wait to buy something they want: The ability to delay gratification can predict how successful one will be with money as a grown-up. Children need to learn that if they really want something, they should wait and save to buy it.
  2. The sooner they save, the faster their money can grow from compound interest: You can begin to shift from the idea of saving for short-term goals, like toys or sweets, to long-term goals and a savings account. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your savings.
  3.  They should use a credit card only if they can pay the balance off in full each month: It is all too easy to create credit card debt, which could give your child the burden of paying off credit card debt at the same time as student loans. Plus, it could affect his or her credit history, which could make sourcing long-term finance difficult in the future.
  4. They should plan ahead and have an ‘emergency fund': It’s all too easy for children to fall back on their parents for finance in emergency situations or should an unexpected expense arise. Instill the importance of having a separate back-up fund of their own, which they can call upon when it’s needed. This will also help them start saving for important milestones, like a wedding or deposit for their first home.

1] http://www.thisismoney.co.uk/money/mortgageshome/article-3184763/Young-homebuyers-st.html 

2] http://citywire.co.uk/money/can-young-people-really-afford-to-save-15-of-their-wages/a887654

3] http://www.mirror.co.uk/money/best-cash-isa-2016-rates-7688200

4] https://www.coca-cola.co.uk/content/dam/journey/gb/en/hidden/PDFs/Coke_Choose_Happiness_Research_Study_2015.pdf

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