Gen Y has little understanding of financial planning, struggles with debt: study
The World Today By Lucy Carter
Financial planners say Generation Y are using debt to pay for their current lifestyles, rather than focus on their economic futures.
Alan Porritt: AAP
Generation Y struggles to save money and has very little understanding of financial planning, according to new research from a consulting firm.
Impact Leaders found up to one-third of 18 to 34 year olds have no savings and many struggle with high levels of debt.
Managing director Sonya Lipski says one in five young people would not be able to get their hands on $500 in an emergency.
"It's actually quite appalling and it's a statistic that not money people are willing to talk about," Ms Lipski said.
"There's actually 2.5 million young people who are considered financially excluded in this country and it really means that you don't have access to a basic bank account or a basic credit card or basic insurance.
"Our survey results actually found that one in two young people experience money stress on a daily or weekly basis."
The research found that while buying a house was the ultimate goal for most of Gen Y, only 70 per cent would ever be able to achieve it.
Ms Lipski says given youth unemployment is over 17 per cent, young people who lose their jobs now can get into huge financial trouble very quickly.
"Not many young people actually own income protection so we're seeing a lot of young people get into a situation where they can't actually bail themselves out and they don't have the savings behind it," she said.
"They can't actually access traditional credit through a bank so it means that lots of young people are actually turning to social services and looking at a welfare provision to actually get through hard times."
'Discretionary spending' obsession
Children born in the 1980s and 1990s are often described as self-centred with short attention spans, and financial planners say Gen Y is prioritising lifestyle over their economic futures.
With Gen Y these days, we have huge expectations around lifestyle, huge points of pressure around consumption, getting the latest iPhone, getting the latest fashion.
"Generally they're staying home with their parents until their late 20s, early 30s, so the ideas and concepts around real world spending and expenses haven't really manifested themselves for those people as yet," said financial planner Ash McCaulliffe.
"They do allocate a large amount of their income to what I term 'discretionary spending' and when they do move out of home or start a family or get into longer-term relationships the real world expenses hit them and they're not generally prepared to deal with that.
Ms Lipski says young Australians face financial pressures to stay 'on trend'.
"With Gen Y these days we have huge expectations around lifestyle, huge points of pressure around consumption, getting the latest iPhone, getting the latest fashion," she said.
"The only way we can actually get that is to resort to debt."
Calls for more financial education
The Australian Securities and Investment Commission is calling for a greater focus on finance in the new national curriculum to stop young people from getting into debt.
Robert Drake from ASIC says people need to learn good money habits at a young age.
"There are opportunities within that to learn about money within subjects like English, within maths, as well as within subjects like business and economics," Mr Drake said.
"We think it's absolutely crucial that kids do learn about money at a young age so they don't learn by mistakes later on.
But Mr Drake says Gen Y is not entirely to blame for their economic misfortune.
"This Generation does face more challenges with the availability of credit, whether it's credit cards or pay day loans being waved around," he said.
"That requires quite a lot of discipline to think about the future and to moderate your spending, moderate your lifestyle according to what you can actually afford rather than living it all up today and letting tomorrow look after itself."