Generation Broke
Bankruptcies among 18-25-year-olds have increased ten-fold. Why are young people struggling so much with money?
If you were a teen when Bee Gees hit Night Fever was No 1 then statistically, by around age 25, you’d be likely to have launched your career, bought your first home, be engaged or married, planning a baby and started paying into a pension. You might even have caught the tail end of “jobs for life” and mortgage endowments as well.
Today’s 25-year-olds will tell you it feels like a luxury to even dream about any of these. In fact, many are so mired in debt, they’ve been forced to declared themselves bankrupt.
Figures from The Insolvency Service, a government body, show a tenfold increase in under-25s going bust over the past three years. Numbers have been steadily rising since 2008, but there has been a spike since 2016.
Some have debts of more than £50,000 (on top of student loans) and will never be able to pay the money back. They can see no other way out. So what is it about this generation that has gone so badly awry?
That depends on who you ask. Experts agree a perfect storm of rising living costs, social media pressure and a broken property market is not making life easy for millennials trying to create the life their parents had at a similar age. Easy credit, though, is readily available to those who want to give it their best shot.
Dr Edward Yates, a lecturer in employment relations in the School of Management at the University of Sheffield, believes debt for young people has been completely normalised. If you’re paying astronomical student fees and living costs, it’s easy to disregard another few thousand pounds on a credit card for holidays or a car, he says.
Millennials seem to be targeted insidiously by credit card firms offering seductive deals in the form of “advertainments” – powerful almost subliminal commercials, artfully concealed in slickly produced videos and games, blurring the lines between product promotion and media entertainment.
Frankee Adams, 30, admits she was seduced by easy credit and the desire for a glamorous lifestyle. After graduating, Adams started working in a job that involved selling high-interest credit cards on the street in Sheffield, where she shared a flat with friends.
“It didn’t feel great selling credit, but it was commission based and well paid; I earned between £1,200 and £2,000 a month. I was lulled into a false sense of security by what I was selling and got myself into a whole load of debt.”
She was advised that she could improve her credit rating by using credit cards to prove she was a responsible borrower, in order to get a mortgage in the future. “Companies want to know you’re a good bet, and credit cards are a good way to prove you’re a reliable customer – but only if you can make the repayments, which I thought I could manage.” Adams maxed out her cards buying clothes and make-up, and by eating out in restaurants most nights.
“I had a nice car because I wanted to appear a certain way and look successful to match the job I was in. All my friends earned roughly the same as me and we were all doing the same thing,” says Adams, who say her parents always had a balanced approach to money. They saved, but also enjoyed spending money on treats and holidays too.
“I thought I’d be just like them. I trusted the banks too, and thought they wouldn’t keep putting up my credit limit if they didn’t think it was OK. I didn’t realise how ruthless they can be and how much they want you to be in debt and paying high interest.”
She says she was managing quite well, until she missed one payment.
“The interest payments quickly rose to over £100 a month, as well as the actual payments of £200 and £300. I also managed to accrue several parking fines, which I put off paying.” Eventually she was paying off about £1,000 a month in interest and could barely manage to pay for rent and food.
Adams fully admits to having a lifestyle she couldn’t afford. “Our generation are under a lot of pressure to keep up appearances. As well as wanting to keep up with people on social media, you’re offered easy credit – and I took it. There’s an element of magical thinking involved – I assumed that one day I’d be in a high-paying job and all the debt would go away.”
After 18 months of struggling, Adams got a better-paid job in sales. She also went to debt advice provider PayPlan, who negotiated with the credit card companies to lower the payments until she could get back on her feet.
“I did think about going bankrupt,” she says. “But I wanted to start my own company, and knew if I became insolvent, I’d be barred from doing that.”
Two years on, she has launched her own business, bareandbond.com – a subscription perfume company.
“My experiences have made me very savvy and disciplined with money, which is what you need when bootstrapping a business. But I no longer have a credit card.” Instead, she has an account with Monzo, an online bank that helps you manage your money.
While millennials face a specific set of challenges, some experts think young people have a very active role to play in the issue of debt. “Stagnant, low wages and easy credit definitely have a part to play,” says Kim Stephenson, debt psychologist and co-author of Finance is Personal (Amazon,
£27.99), “But there’s something deeper going on. Millennials are spending money they don’t have, on stuff they don’t need, to impress people they don’t know. It’s madness. Social media platforms such as Instagram give people incredibly unrealistic expectations. Reality TV shows, influencers and bloggers who appear to have made a fortune from nothing give absolute false hope – that if you live the lifestyle, you’ll somehow be able to afford it.”
Members of this generation, Stephenson says, feel deprived if they don’t have the latest fashion or aren’t out every night. Many of the boomerang generation live in their parents’ home, do not pay rent and see their salaries as disposable. “I hear a lot of complaints about mortgages being unaffordable and sky-high rents but I also see a lot of holidays in Thailand, flash cars and the pressure to achieve a perfect lifestyle.
“The need for instant gratification combined with buy-now-pay-later easy credit is fuelling young people’s financial woes. This generation needs to do some soul searching and dig deeper to find what will really make them happy. Boring though it is, you can’t have financial stability without some discipline and sacrifice.”
Research backs this up. A poll from MoneySuperMarket found young people are getting into record amounts of debt by taking out payday loans to fund a luxury lifestyle of holidays abroad, brunches and gym memberships. Rethat search from Mintel suggests that the easy availability of different sorts of credit is also contributing to millennial debt. Banking apps, payday loans, overdrafts and multiple credit cards are designed to encourage overspending. Contactless payments make it easy to forget that cash is actually being spent.
“It’s so easy to borrow money now,” says Thomas Slide of Mintel. “You no longer have to go to a bank: you can just download an app in an instant, take out a payday loan, open a new bank account with another overdraft or apply for a credit card online.” Stephenson adds that this generation sees luxury as a necessity. “Mine was a ‘make do and mend’ mindset, but no one buys secondhand clothes or furniture any more. Everything has to be new. Forget damp student digs, third-hand cars and charity-shop clothes, this is generation ‘only new will do’.” This attitude is possibly aided and abetted by shops such as Ikea offering various ‘student packs’ which, while relatively cheap, encourage the trend for brand new.
Dr Yates agrees that young people’s spending patterns have changed, but says the problem is more complex than overindulgence. “There’s almost certainly a degree of ‘comfort’ spending and retail therapy among young people, who see limited opportunities to buy property or increase their salaries and may have adopted a more hedonistic, Yolo [you only live once] approach to life. “But look at the broader social changes that have occurred and the fundamental shift in the
Frankee Adams, 30 “Business owner of bareandbond.com I did think about going bankrupt. But I wanted to start my own company, and knew if I became insolvent, I’d be barred from doing that, so PayPlan was a better option. Jake Allfree, 22 “Student at the University of Warwick My generation is not fazed by debt. We just see it as part of life. My parents have always been frugal and I absorbed that message, which is why I’ve worked as a tutor throughout university - but it still doesn’t touch my student loans. Bailey Broadhead, 25 “Studied dentistry at university I have a student loan and other expenses, but I treat it as a higher tax rather than a ‘debt’.
economy over the past 50 years. Economic conditions for young people have been worsening since the Seventies, with the demise of UK manufacturing and engineering, the rise of low-paid service sector jobs. Labour markets have been deregulated in an attempt to make the UK compete on the basis of low wages rather than high-quality work.”
All of this, he says, coupled with the economic crisis of 2007, means job and pay conditions are worse than they ever have been for young people in 2019. “There are very few real training opportunities in trades and little opportunity for quality jobs with a real chance of promotion and salary increases, there have been swingeing cuts to welfare and big rises in the cost of living. It’s made life very difficult for millennials.”
Then there is the question of housing. Young tenants spend more than a third of their income on housing, and one in three borrow money to cover their rent, according to charity Shelter. Meanwhile, the Resolution Foundation think tank predicted that one third of today’s 20- to 35-year-olds will never own their own home.
The state of the jobs market has meant that more and more young people are turning to self-employment. The number of self-employed 16- to 24-yearolds has almost doubled since 2001.
While it’s seen as innovative and positive that more young people are attempting to create wealth for themselves, it also means it can make them much more vulnerable financially, especially if they are part of the gig economy where zero hours contracts make budgeting and money management skills essential.
This, says Guy Anker, managing editor of moneysavingexpert.com, is what is missing from young people’s skill sets. “Financial education in this country is terrible. Everyone should be taught from a young age what APR is, how mortgages work and basic skills such as how to balance income and expenditure. The best present parents could give their children is to sit them down and explain the basics of money management, but sadly, many people from older generations know very little too.”
He recommends using technology to make it easier. “Online banks such as Starling and Monzo and apps such as Yolt use algorithms to analyse how you spend and save, helping you make better decisions.”
Lerisse Johnstone, from Leicester, feels she would definitely have benefited from a better financial education at school. She got into trouble with debt at just 23. “I’d planned to go to university and get a good job, but it just didn’t work out that way,” she says. “I became pregnant. But a failed relationship and a fallout with my family meant I was living alone with two small children.”
Despite working, Johnstone fell behind with credit card bills, and missed payments on catalogue accounts as well as having to pay bills, rent and for expensive childcare. “I was also trying to keep up with friends and go out, when I really couldn’t afford it.”
The cracks began to show when Johnstone, 33, was made redundant from her job at a beauty salon. “I applied for benefits, which didn’t come quickly enough, then turned to payday loans to pay for food and rent. The interest rates were so high I knew I couldn’t pay the money back – but it felt like my only option.” After months of stress and sleepless nights, Johnstone sought advice from a debt charity, which helped her to declare insolvency with debts of thousands and thousands of pounds.
“Although insolvency isn’t great, I was relieved to get rid of all that stress and being hounded for money. I didn’t feel judged, in fact, people were sympathetic and supportive, especially my bosses at my new job.”
After a difficult few years, she managed to turn her situation round when she landed a job as a senior vendor partner at Hays Recruitment. “They introduced me to Salary Finance, an employer scheme that allows me to access my salary as I earn it so that I never have to get a loan for emergency bills, and if I do, I can borrow through the scheme at affordable rates. It also helps me budget and save, calculating what I can afford to put away. It is a lifesaver if you’re not confident with money.”
Johnstone’s story has a happy ending. But not everyone is so lucky. And the concern is that many young people with spiralling debt will struggle for many years without being able to get back on their feet, resulting in misery and in some cases, severe mental health problems.
Money coach Simonne Gnessen, founder of Wise Monkey Financial Coaching and author of Sheconomics (Amazon, £10.99), agrees that the solution to debt is education.
“Millennials use money to ‘selfsoothe’,” says Gnessen, “They need the skills to understand why they spend what they spend, to grasp budgeting, saving and spending wisely, and they need to learn to inoculate themselves against seductive easy credit.”
Despite the uncertain property market and stagnant wage situation, Gnessen is sure that it’s possible to get on the property ladder, reduce debt and save, no matter how small your salary.
Her view is that money is a mindset and everyone can put away a little bit. “If you feel the need to spend every penny you earn, it may be that you’re compensating and rewarding yourself for a stressful job that you hate.” She suggests reframing your thoughts. “Look on savings or paying into a pension as a future gift to yourself, so you don’t have a deprivation mindset. Saving is addictive. Get into the habit. It might take this generation longer, but getting on to the property ladder is not impossible. Millennials have to understand that they can’t have it all – no one can, even baby boomers, who now feel under pressure to shoulder the burden of their children’s debts.”
Of course, not all young people have a reckless approach to spending. When Bailey Broadhead went to university to study dentistry she was determined not to rely on her parents. She worked hard and, at 25, can command at salary of between £40,000 and £89,000, depending on where she works although she still has some debt.
“I have a student loan but I treat it as a higher tax rather than a ‘debt’. I have a help-to-buy ISA, which I share with my boyfriend who is a quantity surveyor. We hope to get a mortgage on a house in the next few years,” says Broadhead, adding that her approach to money was instilled in her by her parents who taught her that she had to work for things rather than acquiring them then paying later.
Jake Allfree, 22, aimed to reduce potential debt by working through university and is now in his fourth year studying engineering at the University of Warwick. He also teaches maths, physics and chemistry to schoolchildren through MyTutor.co.uk, a private tuition company.
“I’m lucky that I have skills that are in demand,” says Allfree, who has made £10,000 already. “But it still doesn’t touch my student loans.”
He believes that his generation has a “debt” mentality.
“We just see it as part of life. It does feel rather unfair though. I have a friend who knows she’ll sacrifice a grade in her degree because she has to get a job or she’ll have to take on more debt,” says Allfree, adding that his parents have always been frugal; a message he’s absorbed.
Parents of children in debt often wonder how they can help. Many decide to open up the Bank of Mum and Dad to help out, sometimes to the point of jeopardising their own finances: Experian has found that a third of parents put their finances under strain by paying for their children’s debts. One in eight resorted to credit to do so.
But Simonne Gnessen counsels against those baby boomers helping their offspring too much financially.
“If you can easily afford to help your children with house deposits, then great, but do not raid your pension or remortgage for them. They’ll inherit it later anyway, they need to learn to adapt and manage. Don’t pay off their debts unless in a controlled way, and there are plans in place for them to pay all, or some of it back.”
By all means, keep a roof over their heads, feed them and support them mentally and emotionally, says Gnessen, but young adults should be past handouts and pocket money and be earning a living. Even if they’re swamped with debt, support them to sort it out for themselves – even if that means they have to become bankrupt.
“Try thinking about it like this: if you give your adult children all your money now, you will become a burden to them in old age if you can’t support yourself later. Pension and mortgage raids are not the answer,” she says. Lerisse Johnstone, 33 Sales partner, who came back from “bankruptcy Although insolvency isn’t great, I was relieved to get rid of all that stress and being hounded for money. I didn’t feel judged, in fact, people were sympathetic and supportive, especially my bosses.