One in five young people say their finances are out of control

Financial Wellbeing expert says employers have unique opportunity to help young employees when they first join a workforce.

Research from financial wellbeing experts Neyber found that one in five young people1 in Britain admit that their finances are out of control.

It also uncovered that an alarming 70% of people under-34 need to regularly borrow, either to pay their monthly bills or deal with day-to-day living expenses, and that payday lenders are more commonly used by the young (8% of 18-24 year olds had used one, compared with no one over the age of 65).

What’s more, according to the Money Advice Service, 18% of young adults have borrowed money from a friend or a family member to pay for necessities like bills and 61% agreed that their life would improve if they could manage their money better.

Heidi Allan, head of employee wellbeing at Neyber, says: “Whether it’s job uncertainty and fluctuating wages as a result of zero hours contracts, university loans or increasing property rental costs, many young people are seeking out unnecessarily expensive loans and other forms of credit just to support day-to-day living. One of the many impacts is that they aren’t able to create savings – for a buffer when they need extra financial support or a deposit on their own home. Good financial wellbeing is far too remote for far too many young people today.

“Employers can help. Being paid for the first time is one of life’s many milestones and the beginning of a lifelong relationship with earning, saving and spending money. Getting that relationship right from the start is the basis for good financial wellbeing, and employers have a unique opportunity to help young employees when they first join the workforce.

Heidi Allan suggests ten ways for employers to kick-start a young person’s healthy relationship with finances: 

  • Help employees build a budgeting habit. Many fall into the trap of thinking that budgeting only matters when money is tight. Good budgeting is an essential part of helping them understand how much money they have to live on day-to-day. Armed with this knowledge they’re more likely to spend within their means and begin to save (no matter how little). This puts an individual in control – and feeling in control of money is at the root of all financial wellbeing.

  • Offer access to appropriate financial products. Younger workers haven’t had the opportunity to build up a credit score, so it can be difficult to get approval for certain types of financial products. Offering access to these via the workplace means employees are not on their own when it comes to finding appropriate ways of saving and borrowing and that could also mean they have access to better forms of finance, should they need to borrow money.

  • Provide financial education. Most young workers won’t have had any financial education at school. They may have learnt money habits and attitudes from their parents and other family members, or from their peers. For some, that will be an inspiring first introduction to financial matters – but others may need to find ways to break away from repetitive patterns of debt and poor financial wellbeing. Plus, the future for young employees today will be very different from that of their parents, and they’ll need support to think about their short, medium and long term financial goals in a changed world.

  • Support saving for the long term…. Pensions auto-enrolment means that for many workers, their first pay cheque is also the point at which they start saving for retirement. The longer employees save for, the more likely they are to build up a credible retirement pot by the time they reach their 50’s and beyond. Even at the current minimum contribution rate of 8%, someone who saves all through their working life could build up a credible ‘pot’ by the time they leave the workforce. But faced with more immediate aspirations and financial demands, it can be tempting for young employees to opt out. Make sure they don’t miss out on the ‘free money’ in terms of employer contributions and tax relief.

  • …and help with today’s priorities. First-time workers will also have short and medium term aspirations, such as saving for a house purchase (or even to be able to rent on their own) and paying off student debt. There are plenty of ways employers can help – from loans to cover rent deposits, to generic guidance or financial advice that can help employees prioritise and work towards their financial goals.

  • Build a safety net. Having savings to fall back on for unexpected expenses or shortfalls in earnings is a vital part of feeling in control of finances. As younger employees become more independent, moving out of the family home and renting or buying independently, the need for a safety net becomes much more important. Even a small amount of money put away regularly will soon add up.

  • Automate savings. Saving money before you have the opportunity to spend it is the best way of building up a safety net and getting into good habits. Salary exchange for pensions is just one way to do that, as is consolidating any debts and automating repayments.

  • Consider offering a LISA. The Lifetime Savings ISA can be a great savings mechanism for younger workers saving for a mortgage, or as an extra form of retirement savings. It’s open to anyone under the age of 40 and could deliver as much as £1,000 a year as a tax-free bonus.

  • Use technology. Used in the right way, technology has huge opportunities to help employees of all ages with their money management. There are excellent tools to support employees in understanding how they spend their money, and also to help them save, for example by rounding up spare change from purchases and putting it into a savings account.

  • Get imaginative. Saving, debt management and good budgeting habits are all crucial to good financial wellbeing. But there may be other ways that employers can help younger workers achieve their personal goals without being held back by money. For example, the coffee giant Starbucks announced recently that it will fund online tuition fees for UK staff who want to study for a degree.

Kay Phelps