Figures from the Insolvency and Trustee Service of Australia show that one in five bankruptcies in Australia is someone under the age of 30. Some journalists say it’s because our brains are not fully developed, others argue it’s because we don’t fully appreciate consequences. I think you don’t have to look much further than the facts to realise that Gen Ys as a generation are suffering from the same problem our debt ridden parents are; a lack of proper education.
Over the last 10 years the household ‘debt to income ratio’ has gone from 56 per cent to 125 per cent. This means that the average household spends 25 per cent more than what 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 that are good are spending what they don’t have.
CPA Australia, one of the largest accounting groups in the world, released a study indicating that the average debt per person between the ages of 18 and 24 is $21,000. With the spokesman for CPA Australia, Peter Mulqueen, indicating that HECS debt, mobile phone bills and credit cards are the major sources of debt for Gen Ys.
This is an issue, especially for young people. Considering that the average Australian earns $57,000 each year, a debt of $21,000 before the age of 24, is a bad start to an even worse career.
When this issue has been reported in the media, the finger has often been pointed at Centrelink, and there has been many calls for Centrelink to increase the Youth Allowance which is made to students. I think this is a short term solution to a much greater problem and would be counter-productive to what we’re trying to achieve. Giving us more money is the last thing we need, especially now that the vast majority of the population have demonstrated that we don’t know how to use it effectively.
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.
The important distinction I think for a lot of Gen Ys is about learning the difference between an expense, and an investment. Owning a home for instance, or an investment property, is generally considered an investment because it is going up in value. Owning a car, is often considered an expense because usually they are going down in value, they are a depreciating asset.
Often the best outcome to come 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. 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, the vast majority of people have the ability to earn more from investments each year, than the average Australian does from working all year.
Because the current education system is doing very little to address this issue with any level of cut-through, it is important that we as Gen Ys educate ourselves on the issues of debt and investments. If you can begin to develop your financial understanding at a young age and learn how to make money from investments rather than employment alone, I believe this will be the most important skill set you learn in terms of building your own net worth and enjoying a level of financial success.
Y Not Start Now?
- 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. It is said that if you read 20 books on a subject (not text books), you own that subject.
- 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.
- Believe it’s possible. It is.
Jack Delosa is a Gen Y Media Spokesperson and leading entrepreneur in Australia. He has been named in the Top 30 Entrepreneurs under 30, in Australian Anthill 30Under30. He is the founder of The Entourage, a movement of young entrepreneurs (18-35) leveraging off the experience the top entrepreneurs globally. firstname.lastname@example.orgSuscribe to the podcast