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Financial education and the debt behavior of the young

Mar 20, 2019 by

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A significant share of the population is in debt. It comes as a surprise to find out that people you know are struggling to make ends meet. Yet, they are. Numerous individuals are drowning in expenses and are unable to think about the future. Young people are the worst affected by debt. Credit cards, personal loans, and mortgages are only a few examples of debt. The rising debt among the young is reason for concern. People are holding large volumes of credit and this might result in bankruptcy. Apparently, there is no explanation for this situation. However, if you are to dig deeper into the matter, you will find out that the young generation has some deficiencies. To be more precise, the individuals lack financial education. More often than not, financial education is overlooked. Many consider that financial literacy is the solution to the so-called debt epidemic. Financial literacy may very well be the key to a debt free life. Please continue reading to find out more about the importance of financial education and the debt behavior of the young.

Is there a financial illiteracy problem?

Educational bodies, as well as governments, have been asked to take action and solve the problem of financial illiteracy. The question now is: is there really a problem? Many argue that it is. There are many people, especially youngsters, who do not have a clue about saving money or investing. Millennials, as far as they are concerned, do not have emergency savings and neither are they capable of explaining basic financial terms. The result is that they make poor financial decisions. For example, individuals buy credit cards when they can simply take out a personal loan. Very soon, they realize that they are not able to keep up with the payments. Young people are heavily reliant on debt and they have shortcomings when it comes down to various financial areas. Studies have shown that, in the context of new economic realities, they require professional guidance and consulting. The young need help with understanding and managing their financial situation and future.

The strong need for financial education in the young’s life

At present, banks and credit card companies, are offering consumers countless opportunities, which they cannot refuse. In the absence of adequate knowledge, consumers jump headfirst. They enjoy stylish furniture or fancy vacations, not thinking about the consequences. An ever-increasing number of individuals end up declaring bankruptcy. This is totally unnecessary, as they are solutions. If you have, say extreme debts, you can resort to this formal solution. The Individual Voluntary Arrangement is meant to help people who are in a crisis. You can find detailed info here. A practitioner helps people in need figure out how much they can realistically afford to pay over a period of five years and determine how the contribution will be made.

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Getting back on topic, there is nothing more important than financial education. The increasing sophistication of financial markets translates into the fact that consumers do not make the best decisions with regard to choosing between interest rates or savings plans. It is true that there are solutions for debt problems, yet it is better to avoid debt. Regardless of the person’s status, daily financial needs, and age, it is essential to possess skills and knowledge and, most importantly, to make informed decisions when it comes down to the budget, making new purchases or planning for retirement. Knowledge of finances in general is not something taught in schools, unfortunately. Efforts need to be made for curriculum inclusion and regular testing. High school students, for example, should complete at least one economics course It is not possible to explain the extent to which such a course increases efficiency, but it is sure that it is a good thing.

Have attitudes towards debt behavior changed?

People between the ages of 18 to 34 are falling into debt. Is it really their fault taking into consideration that they are not financially literate? Maybe not. Financial institutions are constantly trying to lure them, not to mention that the young have a greater fiscal responsibility than before. Without financial education or support for that matter, they have no choice but to lean on the benefit system and take on debt. Debt is not something out of the ordinary. Debt is becoming an important problem in nations with large economies, not in emerging or developing countries, as it would be tempting to think. Excessive borrowing can potentially lead to a financial crisis. This is certainly the case in the United States.

It is interesting to note a cultural shift pertaining to debt attitudes. More specifically, some people are uncomfortable towards debt. Why is this significant? Because norms and attitudes play a key role in having debt. Individuals are not willing to discuss personal finances matters with their offspring and they disapprove borrowing. This can be explained by their lack of education and a small income. What you can see is a regression. Attitudes are mostly negative and there is a great fear of indebtedness. The younger generation does not experience this discomfort. Perhaps they had parents who were capable of understanding economic outcomes and ensure them financial stability. The point is that there is no self-imposed borrowing restraint.  

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 Trends in financial literacy

Until this point, it is clear that numerous individuals are completely oblivious as far as financial topics are concerned. If they have some kind of knowledge, it is limited. Efforts are being made to draw attention to the importance of financial literacy. In what follows, you have the main trends contributing to financial wellness:

  • Virtual reality: VR is utilized nowadays to help customers understand complex notions and products like loans. Virtual reality is already used in the financial industry, so this is not really an expenditure. The virtual world is accessible via desktop computers.
  • Too many choices: There is no denying that there is an abundance of choices nowadays. There are many more participants to the market and their offerings are quite overwhelming.
  • Increased attention to helping employees: Some employers will do anything to ensure the wellbeing of the members of their teams. They make financial education possible through specialized programs. What is more, they offer cash advances to pay loans or credit cards.
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1 Comment

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    Donna Paul

    Yup, financial literacy is indeed needed to create awareness for the youth today. I am also one of them, though. Will definitely share your article. Thanks

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