As the financial burden of growing up continues to weigh heavily on Gen Z and younger millennials in the UK, a recent analysis has revealed alarming statistics on negative wealth. With one-third of young adults in Great Britain struggling to make ends meet, politicians are being called upon to take action.
A recent analysis by the Fairness Foundation has highlighted the growing problem of ‘negative wealth’ among young people in the UK. This phenomenon refers to a situation where debts outweigh assets, leading to lower wages, worse health, and reduced civic engagement.
Negative wealth refers to a financial situation where an individual's liabilities exceed their assets.
This can occur when debts, loans, and other financial obligations surpass the value of one's possessions, investments, or income.
According to a study by Credit Karma, approximately 34% of Americans have negative net worth due to debt accumulation.
Negative wealth can limit financial flexibility, increase stress levels, and even impact credit scores.
It is essential for individuals to manage their finances effectively to avoid falling into this situation.
The report found that one-third of 25- to 34-year-olds in Great Britain have negative wealth, with 47% in Wales and 18% in London. This translates to an average net debt of £8,313 across all age groups in 2022. Rising rents, student loans, and the cost of living crisis are likely contributing factors.
Women with assets – usually savings – at the age of 23 earn ‘11% higher wages by the time they reach 33’ compared to those without assets. Additionally, women with assets of more than £1,000 at 23 are significantly more likely to report ‘excellent’ health later in life.
Student loan debt is a significant barrier to building up financial assets, even for young people earning less than £27,295 who started their courses after 2012. This makes it harder for individuals to save and build resilience in the face of economic shocks.
According to the Federal Reserve, outstanding student loan debt in the United States has surpassed $1.7 trillion.
This staggering figure represents a significant increase from just over $500 billion in 2008.
The average student graduates with approximately $30,000 in debt, which can lead to financial struggles and delayed life milestones such as buying a home or starting a family.
Many students are forced to take on multiple part-time jobs or delay entering the workforce altogether due to the burden of student loan debt.
The Fairness Foundation’s chief executive, Will Snell, is calling on politicians to tackle debt and the broader problem of financial asset ownership as a priority. He suggests reintroducing initiatives like the Child Trust Fund scheme or implementing bold asset-building policies, such as a citizens’ inheritance, funded by higher taxes on wealth.
The rising costs associated with running a household are making it harder for people to save and build financial resilience. This is creating a harmful cycle of debt for more and more young people. StepChange, the debt charity, has seen a significant increase in demand for their services, with a third of those seeking help last year being aged 25 to 34.
Financial resilience refers to an individual's ability to withstand financial shocks and recover from economic downturns.
Key components of financial resilience include building an emergency fund, paying off high-interest debt, and investing in assets that generate passive income.
According to a survey by the Federal Reserve, 40% of Americans cannot cover a $400 expense without going into debt.
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‘47% of 25- to 34-year-olds in Wales have negative wealth’
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‘18% of 25- to 34-year-olds in London have negative wealth’
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Average net debt across all age groups is £8,313
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‘35% of 25- to 34-year-olds are showing signs of financial difficulty’
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‘15% of UK adults have used credit, loans, or an overdraft to survive until payday’
