20–24th March 2023 was Debt Awareness Week in the UK. With debt levels soaring among Generation Z around the world, we look at what you can do to set your children up for a debt-free future.
The debt crisis and young people
After a year of punishing inflation rates in 2022 – reaching double digits in many parts of the world – and with the cost of living rising, young people are struggling as the cost of rent, food and utilities skyrockets. Debt levels for this demographic are rising as a result:
- In the UK, average debt for 18-24 year olds is £13,000 and the Financial Ombudsman has seen the number of 16- to 24-year-olds asking for help with loans rise by 213%
- In the US, Generation Z (18 – 23 year olds) owe an average of $16,043, racking up more debt than any other generation between 2019 and 2020
- In Australia, in November 2021 over half a million young people took out a pay-day loan or consumer lease. And one in five young Australians has been forced to borrow from family or friends to get by.
The Financial Conduct Authority in the UK warned of a looming debt crisis among young people back in 2017. At that time the Chief Executive said that young were not borrowing recklessly but out of a need to cover essential living costs. Since then, the situation has only worsened.
Young people with a high debt burden can find themselves with a myriad of problems, not all of them financial. Stress, anxiety and depression often result.
Once young people fall into the debt trap, it can be very difficult to climb out. This makes reaching other financial goals, such as owning a home, far harder to achieve.
This is deeply concerning for parents. No-one wants to see their children struggle in life but with living costs soaring while salaries stagnate, struggle is becoming the norm. So what can you do to protect your loved ones?
Here are three ways you can help secure your child’s financial future:
Give them a financial education
Start your child’s financial education early. Establishing healthy behaviours such as saving, budgeting and living within your means can be tackled from early childhood and will teach your children financial lessons which will serve them well throughout their lives. It would be amazing if these skills were taught in schools, but they rarely are so the onus is on parents.
Encourage a university education
A university education is a huge expense, but for the majority of graduates it pays off in the end. Many studies show a positive correlation between level of education and earnings.
According to one recent study by the Institute of Fiscal Studies, in discounted present value terms, ‘Over their working lives, men will be £130,000 better off on average by going to university after taxes, student loan repayments and foregone earnings are taken into account. For women, this figure is £100,000.’
Start education fee planning as early as possible
As the cost of going to university is so high, we advise our clients to start an education fund while their children are young. If you can afford to start saving early you will spread the high cost of your child’s university education over a number of years, easing the burden on both you and them when they come to fly the nest. Compound interest will give your savings a massive leg up too.
If your child decides that an academic path is not for them, the savings will not be wasted. Any money that you put aside for your child’s future is going to give them a head start in life whether they use it for education, to fund a business or as a deposit on their own home. Forward planning now gives them the best possible chance of avoiding the debt trap as young adults.
Holistic financial planning is key
It is, however, important to look at your financial planning holistically. Above all, don’t sacrifice your retirement savings, and your own future financial security, for theirs.
If you’d like assistance with putting together a financial plan to protect your future and that of your family, Infinity’s advisers have a wealth of experience devising holistic financial plans for expats in Asia.
Why not contact us to book an appointment and set your children up for a debt-free future?
A leading provider of expat financial services and wealth management services across Asia.