Is Gen Y The Debt Generation?

2 March 2012

Is Gen Y the Debt Generation?1

It doesn’t matter what generation you belong to, having more debt that you can cope with isn’t fun! So whether you’re an X, Y or even a Boomer, we have some great tips for taming the credit beast and getting off the debt treadmill!

Gen Y – they’ve got it all. They’re the generation of social networking, Harry Potter, and the iPod. They’re technologically savvy, open-minded and focused on creating a healthy work/life balance. They managed to avoid the fashion disasters of the 70s, faced down the dreaded Millennium Bug and they’ve got their whole future ahead of them. But unfortunately, Gen Y has something else that’s a whole lot less encouraging – an enormous amount of debt …

They’re not alone: Australia’s love affair with credit is stronger than ever. Figures from the Reserve Bank reveal that our collective credit card bill from December 2010 broke through the $49 billion mark, and our average household debt has reached 2.5 times our annual household income.

Clearly, debt is common, but it seems young Aussies in particular really need some great debt management advice to learn how to cope with it

Veda Advantage 2009 data indicates that Generation Y are responsible for 37 per cent of Australia’s total consumer credit defaults, despite only comprising 20 per cent of the ‘credit active’ population, with a higher rate of telecommunication and personal loan defaults than any other generation. According to ITSA, 15 to 29 year olds accounted for 18 per cent of people applying for bankruptcy and 37 per cent of people entering debt agreements in 2009. Failure to manage debt on this scale can have serious ramifications – and bankruptcy isn’t the ‘easy’ out many people think it is. Bankruptcy limits what a person can own, where they can work and where they can go for years at a time – and the notation stays on your personal credit reference for seven years. If you’re a young person, this is the last thing you need hanging over your head – but many members of Gen Y just don’t seem to have learnt how to avoid it.

The late teenage years are a critical time financially – it’s a time when young people start to bring in steady incomes and take on big financial responsibilities. But it’s also a time that’s littered with ‘debt traps’. If you want to avoid getting stuck, try these simple tips for avoiding some of the most common financial pitfalls:

Go pre-paid
Mobile phone debt is sneaky. Post-paid plans can come with ‘included call’ amounts that can seem impossible to exceed, but these days phones do far more than just make calls – with texting, internet capability and endless options in downloads and added extras, it’s all too easy to eat up your included call quota. And with 83 per cent of teens owning a mobile, that’s a lot of young people at risk. Taking the pre-paid option puts a limit on what you can spend – but remember that just ‘topping up’ your phone every time the money runs out isn’t really a cheaper option. You need to commit to making the credit last for a certain period of time to make the best saving possible.

Think debit not credit
These days it can seem hard to get by without a credit card. Online shopping generally requires you to have one, and everyone’s keen for the simple convenience of just swiping a card to pay. Unfortunately, the combination of high interest rates and easy access to money can cause big problems – 37 per cent of those who entered into debt agreements in 2009 said that excessive use of credit was the cause of their financial woes. That’s where debit cards can be your ‘knight in shining armour’ – debit cards give you all the convenience of credit cards, and access to your favourite online shopping sites, but because you’re only spending your own money, it’s almost impossible to rack up huge amounts of debt.

Don’t borrow trouble
Once you turn 18, you’re old enough to sign a financial contract. But before you do, it’s vitally important that you understand all your rights and responsibilities. Whether you’re getting your first credit card, taking on a personal loan, or considering guaranteeing a loan for someone else, read the fine print thoroughly and think carefully about whether you have the resources and discipline to manage the debt. Once you sign on the dotted line, you’re liable – so be absolutely certain you know what you’re doing, and you can afford to repay any loans, before you whip that pen out.

These days it doesn’t matter what generation you belong to – budgeting, money management, avoiding financial traps and taking control of your money is more important than ever. If you can do that (and if the 2012 disaster theories fizzle out like Y2K did!), you’ll be able to create the financial future you really want!

Want to make 2012 the most powerful financial year you’ve ever had?


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