One in five people who go bankrupt are under 30 years of age.
Figures from the Insolvency and Trustee Service of Australia demonstrate that Gen Ys are almost as good at spending money as our debt ridden parents. The argument going around in the media is that we’re the “wait for your allowance” generation and that we are financially illiterate. I think that, when you look at the facts, it’s easy to see why our generation is walking the same debt-ridden path previous generations have laid out for us.
Over the last 10 years the household ‘debt to income ratio‘ has gone from 56 percent to 125 percent. This means that the average household spends 25 percent more than they earn, every year. At the moment, Australian households are in debt to the tune of $530 billion. And it’s not just our parents who are good at spending what they don’t have.
According to CPA Australia, one of the largest accounting groups in the world, the average debt per person between the ages of 18 and 24 is $21,000. CPA Australia spokesperson Peter Mulqueen indicated that HECS debt, mobile phone bills and credit cards are the major sources of debt for Gen Ys. When you consider that the average Australian wage is $57,000 per year, this is a considerable burden.
The argument that is becoming even more prevalent in mainstream media is that Gen Ys should be receiving more “Youth Allowance” as a handout from the government. I think when you look at the fact that we’ve already demonstrated a complete lack of understanding in handling money, previous generations included, more handouts will ultimately do more harm than good. This particular proposal is a short-term solution to a much greater problem.
With companies such as Telstra making it possible to pay for a taxi, a can of coke, some groceries and a movie ticket using our mobile phone, the need for effective financial education is becoming increasingly important.
What has become obvious to me over the past few years spent presenting at universities is that an understanding of basic financial principles is not taught anywhere throughout the traditional education system. This leaves us Gen Ys, again, with the responsibility of educating ourselves.
A lot of Gen Ys need to learn the difference between an expense and an investment. Owning a home or an investment property, for instance, is generally considered an investment because both go up in value (usually). Owning a car is often considered an expense because it usually goes down in value – a depreciating asset.
Often the best outcome from effective financial education is the enthusiasm that comes from knowing how to build real wealth, outside of working the usual 9:00am-5:00pm hours. What isn’t covered in high schools or universities are the simple strategies that anyone can adopt to start building their personal net worth. Using smart investment strategies that are readily available, I believe that the vast majority of people have the ability to earn more from investments each year than the average Australian does from working all year.
Developing your financial understanding at a young age and learning how to make money from investments rather than employment alone will be the most important skill-set you learn in terms of building your own net worth and enjoying a certain degree of financial success.
Y and How?
- Investment companies will talk to you for free. You can set up a 60 minute consultation with most financial services companies and they will be happy to outline a strategy that will work for you, based on your current financial situation. They do this because they want to build a relationship with you so you will use them in future.
- Find mentors. Speak to people who have investment properties or who invest in shares profitably. These people understand how to make money from assets without having to work. It may require a financial commitment upfront, which is great because it gives you a reason to save.
- Go to seminars. There are plenty of financial seminars in every main city of Australia, most of which are free. These seminars are great to gain a foundational understanding of what you can do.
- Read. If you want to learn about investing in property, shares or business, there are thousands of books written on these subjects, and you only need to read one or two good ones to get started. Email me if you’d like me to suggest some books that would work for you.
- Don’t search for help from people who are not actively investing. Learn only from people that are making money in the field you want to learn about.
- Get started, even if you have no money and little income right now. Having the knowledge of what to do with money will motivate you to make more of it.
Jack Delosa is the General Manager of Teldar Media. He has personally been involved in over $1.8m in capital raisings. He was recently named in the 2009 Anthill Magazine 30under30 Awards. Jack also sits on the board of Shift International, Australia’s leading personal development organisation for teens. He is a regular contributor for thinkBIG Magazine.
