To think most people my age (32) are making huge financial mistakes?

[ThatPinkHedgehog]

I see so many people in their late 20s and early 30s struggling financially - overspending, not saving, relying on ‘buy now, pay later,’ or just assuming they have time to figure it out later. AIBU to think that financial literacy is seriously lacking in my generation? What do you think the biggest mistake is?

Yes to pensions. When people say I've have 500k in my pension and other people say I'll never have that....it's realising that they never actually paid 500k into the pension, they just started early and let compound interest work. Once you save 100k the interest becomes exponential.

What do you think the biggest mistake is?

Being born at the wrong time regarding wage stagnation & house prices vs wages.

And that I agree with.

That’s why the saying is ‘the first 100k is a bitch’.

And that’s mainly because once you have 100k. You likely do have money you can ‘lose’. And thus the stocks and shares become possible. And your home & dry.

I use buy now pay later frequently, even though I have the money in the bank to pay for the purchase. I also use credit cards. They are good mechanisms to establish a credit history for more significant purchases.

What I see frequently is live for now worry later. I worked with someone who was in their 50s, regular lengthy overseas holidays, didn't own a house. They were on a decent income and could have purchased a suitable property with deposit saved from not travelling overseas (much more expensive from Australia to travel to Europe). They're now in their 70s, pension, struggling to meet rent in a very competitive rental market.

That attitude is across all generations. Have the experiences, worry later. I get having no money. In Australia the average age for first home buyers is late 30s. If you give up in your 20s and 30s there's zero chance.

I don’t think that’s the case at all. I just think it helps you to feel superior to believe everyone else uneducated and you be truth seer

The benefits of compound interest (or any sort of compound growth) for the average saver or investor are usually hugely overstated.

"If you had invested £1,000 in ABC shares 30 years ago you would now have £1 million". Except that 30 years ago you didn't have a spare £1,000 knocking around to take a punt on a random company, nor did you have the remotest idea that ABC was going to be hugely successful out of the thousands of shares you could have chosen. We don't hear much about the people who bought shares in XYZ, which went bust when the CFO embezzled all the cash and buggered off to Monaco.

Compound interest on savings is even less likely to bring huge rewards in the real world. The annual return is probably taxable (the calculations often skirt over that), and even if it isn't, inflation has always triumphed over bank interest and always will.

On the other hand, compound interest on a loan or overdraft or credit card - that you are paying - can very easily mount up. Because unlike the positive form where you start with nothing and initially accumulate almost no interest, you are starting with that large chunk of debt and it just gets bigger. And of course the compounding rate isn't 2.97% APR, it's 29.7%.

Because of all that, the single most important rule of financial literacy is to spend less than you earn, every month. If in any given month you have to spend more because of a major purchase, make a plan now to spend less for the next 3 or 6 months until you catch up. Don't kick that can down the road and tell yourself you'll do it later, because you won't. Of course some people live hand to mouth due to low incomes and necessarily high outgoings, but it seems tragic to me that people with reasonable jobs and decent incomes get into financial trouble due to excessive spending on discretionary consumption (including, these days, a lot of delivery meals and £5 sloppaccinos).

Once you are spending less than you earn, you can slowly start to save. But don't kid yourself - accumulating wealth this way is slow and hard. It's not going to magically double in four years (unless you start earning and saving a lot more). About the best you can hope for, with reasonably investments (e.g., put 100-minus-your-age-% into a low-cost worldwide share tracker fund) is to protect your savings against inflation, with maybe 3% extra APR growth on top over the longer term. There is no magic bullet and everyone has to choose how much gratification to delay, and for how long.

Biggest mistake these days is consumerism - wanting everything new, not prepared to save for the item, £1000 iPhones etc.

I was lucky & bought my first house when I was single & 26 years old but property was cheap then (1997) but I was only earning 13k and I literally spent all my money on bills/mortgage until I got a new job & pay rise. I had secondhand sofa for about £80 and an old cooker cost about £70 & didn’t even have enough money for new curtains so I put up with the hideous ones that were left in the house. Still had a bit of debt on credit cards just to get by but was careful to keep it under control.

no social media to speak of back then so I never felt the need to keep up etc.
Had a really crap basic Nokia 🤣

Not just your generation. Many in my generation too. I was 40 before I sorted my shit out. Luckily I have put towards a pension consistently since I was 28 but made a million other mistakes along the way.

Same. I am annoyed that I was part of the irresponsible financial minority. I think my pre-frontal cortex did not close till 35!

left uni with a degree and a large amount of debt.
She now owns her own home (mortgaged to the hilt but managing) her uni debts are paid.

How did she manage to pay off her uni debts so quickly?

My DCs are all very money aware (31 down to 21). DD1 (just 31) last week told me they could afford to pay off their mortgage if they took all the equity out of her dp's company (they are not intending to). DS and his gf have bought a house well within their means and budget responsibly and dd2 and bf have plenty of deposit saved. All of my children (except dd3 still at university) have no cc debt and plenty in the pension pot already.

I'm sure plenty of young people have no idea and have lots of debt but equally there are many out there doing their best.

I’m the same age. Tbh I think the biggest difference is between those who have had financial help from family and those who haven’t. I know some who have had a significant chunk of their house deposit gifted.

Of course they have a choice not to 'spend' money they don't have on things that in reality they don't need, surely last year's phone is good enough for example.

Dh is 34 but he took a gap year and a masters. We paid off his student loans too. We overpaid the mortgage too but we overpaid 10k to get the student loan down to zero.

I think it's unreasonable for you to suggest it's just your age bracket, when it applies to so many. I do think that more should be taught in schools regarding sound financial planning. I also think it can come down simply to finances. If you're a low earner, sometimes the only way you can replace say, a washing machine, is to get it on finance. It doesn't mean you're being bad with money - you're just not in a position to afford one. It's extremely unfortunate that the interest rates are so high and take advantage of this.

I'm lucky that DH and I are comfortable and can afford any emergencies like a broken boiler etc., although we certainly aren't rich. My eldest is in his early 20s and has just bought a house on his own, having saved and saved during his apprenticeship and first couple of years of employment. He'll be moving into a gorgeous little place and easily be able to afford it - and several of his friends are doing the same. That said, the area in which we live has two major employers that pay way above the national living wage, and that certainly helps.

Given market uncertainty, I also suspect a lot of people are very wary of investing and are living very much day to day. I've always kept up investments with a stock broker my family has used for years and years - but I can't hand on heart say I'd be doing the same if I didn't have that in place.

I’m 32 and I don’t think this is the case for any of my friends however there is a general feeling that everything is very bleak.

Most of my friends have accepted they will never own a house because private rent is so high and they don’t have family money to dig them out.

There will be no state pension when we retire

1 child is the max because nobody can afford childcare for 2 but can’t afford their house if they stop working.

its all very grim and it feels like there’s no way out unless you’ve got family money or granny daycare.

Oldest dd (now 31) was the first year of 9k a year student debt. It makes a huge difference, especially with Masters added on. She recently got a 6k a year payrise. Due to tax and student debt this will only give her an extra 160 a month. Quite deflating.

@hectorzeroni we haven't helped our children at all with housing (no bank of mum and dad) but I do agree that they are lucky to come from a background where working hard, saving and house ownership is the norm.

Agree but I understand why some give up they feel hopeless

Um no. I'm in my 30s as saw my parents constantly borrow more than they could afford (after the 80s credit boom). They are in their 60s and still making terrible financial decisions. If anything, I'm overly cautious about credit and debt

Yes this, I wish I properly understood the difference between saving and investing much earlier and also that you don't need large amounts to invest, it's not only for rich people.

We, most of us, consume too much.

We don't need take away food, bottled water, a phone for every person, soft drinks every week, a new car every five years, sweet treats, hair dye, spray tans, alcohol, new clothes every season, holidays in planes to other countries, holidays to anywhere, actually..
The young people of today, more so, have grown up with all that as normal where as former generations knew they were luxuries.
Living happily deprived of luxury is healthy.

I think a lot of youngsters fear being poor, fear the peer judgement and like to live like they are successful, with much comfort, instant gratification and with little hardship.

To see if how much can really be saved, take the challenge of giving up all but basic necessities for five years.

There are two prongs to success from working long hours - the money earnt and the money saved due to not spending.

I’m now in my 40s (just on the oldest side of gen y) and I know ten to fifteen years ago both DH and I made a few silly decisions. Nothing significant though with losing hundreds or thousands. Probably the silliest when I think about it is high interest loans for pointless things we actually didn’t need. The good news is that ten years later we have good careers/income and make smarter financial decisions.

Because of all that, the single most important rule of financial literacy is to spend less than you earn, every month

As Dickens's Mr Micawber says:

“Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery.”

Nailed it.

It’s not a generational thing, financial literacy is poor across the ages. Plenty of my friends are still putting weddings, brand new cars/kitchens, etc on the never never even though they’re pushing 40. Where I grew up, you got a new look store card when you turned 18 because it was free money. Plenty of people, including me, took multiple overdrafts. I made my final repayment last month at 35 after spending my 20s trapped in the cycle of debt, burying my head - no bank of mum and dad to bail me out.

I still manage money like I have none now even though my husband and I both earn a very good wage. We’ve been very fortunate to be afforded plenty of opportunities to change our circumstances. That’s how we can afford a mortgage, wedding, etc.