The way that young people interact with money is changing – fast. Gen Zs and young millennials are the vanguard, the early adopters of a new digital-first approach: mobile banking and payment apps, digital trading platforms and cryptocurrencies are used without a second thought. Cash is no longer king.
Because access to these financial services has never been easier, the world of money has also never been more equal. It used to be the case that financial markets and products were only accessible to the advantaged few; people with connections, intergenerational privilege and knowledge. But with the help of technology, access to traditional stock markets and newer digital assets is rapidly widening. The financial world is ceasing to be such an exclusive club.
It’s a charge forward that’s not stopping any time soon: the next generation will be even more digitally entrenched. Have you ever seen a four-year-old use voice recognition software to select their favourite Disney television show or nonchalantly unlock an iPhone? I can only imagine what our current toddlers will be investing in by the time they are late teenagers – let alone how they will be doing it.
In my view, it’s all a positive sign of progress. But there’s one area that’s failing to keep pace: financial education.
With all these new opportunities come new pitfalls; without solid financial literacy, young people – the early adopters – are left open to exploitation and financial loss.
Young people are already at the sharp end of financial risk. From an early age they are enticed to take on high-interest debt: from credit card debt to university overdrafts or rent-to-own lending schemes. These services are not inherently bad – they allow those who do not necessarily have the means to take advantage of new opportunities – but they can be difficult to navigate. Users need to be taught how to make them work to their advantage.
And right now, financial literacy has never been more important. This cohort is already in a vulnerable position thanks to Covid. Youth unemployment levels in the UK are at their highest since 2016: a recent report from the House of Commons Library revealed that 591,000 young people aged 16-24 were unemployed from September to November 2020. That’s an increase of 10,000 from the previous quarter – and an increase of 109,000 on the year before.
It’s no wonder that new high-cost debt packages known as “buy now, pay later” (BNPL) solutions are soaring in popularity. According to research by price comparison website Compare the Market, 35 per cent of UK consumers are now more heavily reliant on BNPL schemes, such as those offered by Klarna or Clearpay, than they were before the pandemic. Among 18-24 year olds that rises to 54 per cent. StepChange, the debt charity, has warned that many more people are seeking help for this kind of debt.
Young people are specifically targeted by these new schemes through social media adverts and influencer promotions. If you are financially struggling, and stuck at home with nothing to do during a pandemic, it can be tempting to get sucked into BNPL packages – or, say, to gamble on financial markets through a smartphone app. Recent headlines about “ordinary” investors making millions of dollars by betting on GameStop – and against blue chip hedge funds – will only have fuelled the temptation to speculate.
It’s the perfect storm: the potential for risky financial behaviour is huge, and in the context of the pandemic those losses will hit even harder.
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Earlier this month it was announced that BNPL platforms will come under the supervision of the Financial Conduct Authority, but the answer is about more than just regulation. Schools need to prioritise financial literacy classes that are up to date and reflect the fast-changing nature of a digital-first financial world, and give young people the tools to make informed decisions when the next big thing comes around.
Apps and platforms need to take responsibility beyond a quick warning – giving nuanced and impartial information. The government needs to make it clear that financial information, debt advice and help is available for people who are struggling.
And, of course, as I set out in my book Black Girl Finance, there are also practical steps that young people can take now to help themselves achieve their long-term financial goals in a safe way. Creating a simple budget to ensure you know where your money is going, aiming to build up an emergency fund, paying off high interest debts to free up money and, eventually, investing for the long-term are all realistic tips to keep in mind – no matter what your current situation.
There’s never been a more exciting – or open – time to start embracing new financial platforms and technologies. We are talking about money and debt more than ever before, and young people are at the forefront of this exciting new world of digital finance. But the pitfalls are as limitless as the options, and now more than ever, missteps will hit hard. We need to make sure that young people are given the right tools and opportunities to navigate this space – while keeping their feet on the ground.