Facing complex financial decisions, often without adequate knowledge, can be challenging for anyone, but particularly for young people.
A recent government study found that 49% of 18-25 year olds lacked the confidence to make financial decisions, while 94% aged 14-17 believed that understanding money-management is crucial.
Though schools play an educational role around money in daily life, lessons don’t include fundamental financial concepts such as budgeting, managing debt or saving.
Young, inexperienced people without appropriate guidance, are susceptible to debt-traps impacting not only their lifestyle, but their financial security, and their mental health.
Case Study: Josh (24)
When Josh finished university and landed a well-paying job, he moved out of home, bought a car and enjoyed a lifestyle he felt he deserved after years of study. He dreamed of touring Europe before settling down to buy his own home.
Trouble was, that while Josh earned a decent wage, his pay cycle didn’t align with the due dates on his financial obligations. To bridge the gap, he began using his credit card.
Initially, he repaid the full card balance each month, but when his car registration arrived, he only managed the minimum card payment.
Looking back, Josh realised this was when the downward spiral began.
He’d heard of budgeting – his boss had an office budget – but the idea of creating a personal budget hadn’t occurred to him.
Two years later, Josh was drowning in debt. With no savings, he was forced give up his dreams of the future. He sold his car and moved back home.
Case Study: Sarah (20)
Sarah had saved $1,500 but needed an additional $8,500 for her first car.
The car salesperson explained that the purchase process would be easier if Sarah borrowed through their finance partner, which featured a competitive interest rate over 5 years.
Grateful of their advice, Sarah agreed.
She didn’t realise that referral agreements between dealers and lending institutions may streamline the sales procedure, but often restricted the loan terms. This meant the finance had limited flexibility and was not necessarily the best product for her.
Sarah was unaware that her good savings history and credit score, meant she could have obtained finance through another lender, potentially negotiating a lower interest rate and more favourable terms and conditions.
As economic pressures escalate, financial education is increasingly relevant. As a result, many organisations offer free financial courses and workshops. Check out:
- local community centres,
- Salvation Army’s MoneyCare workshops and financial counselling,
- universities providing financial workshops for students and young professionals
Additionally, comparison websites like finder.com.au combined with government calculators accessible on the MoneySmart website, enable borrowers to research banking and finance products and make an informed decision about the most appropriate loan for them.
Josh’s situation though not unique, could have been easily avoided through informal family discussions and practical participation in household budgeting. After returning home, his parents introduced him to their financial planner who helped him create a budget that focussed on debt reduction and savings.
Meanwhile, Sarah spoke with her bank and was able to refinance her car loan. Her payments are slightly higher but spread over 3 years instead of 5 so she’ll end up paying thousands less in interest over the loan term.
Financial literacy is not just about budgeting, as in Josh’s case, or knowing your options, as Sarah learned.
Financial literacy is a form of empowerment, it’s resilience building, and represents independence and the ability to adapt to the financial challenges that are part of life.
It’s also the foundation for a secure financial future.
