Gen Z and young millennials are battling a “negative wealth” problem due to growing debt burdens that limit their life chances, according to a new analysis from the Fairness Foundation.
The thinktank says negative wealth, where debts outweigh assets, is linked to lower wages and worse health in later life, and that ministers should reintroduce the Child Trust Fund to give young people a greater stake in society.
“Right now, too many people across the UK are living without a financial cushion or are burdened by debt,” said Will Snell, the Fairness Foundation’s chief executive. “This strips them of resilience in the face of economic shocks and shuts them out of the well-documented benefits that even modest asset ownership brings, in terms of future earnings and employment, physical and mental health, and civic engagement.”
The foundation’s report, No Money, More Problems, analysed Office for National Statistics data which showed that one-third of 25- to 34-year-olds in Great Britain had negative wealth, reaching 47% in Wales compared with 18% in London. Average net debts reached £8,313 across all age groups in 2022, up from £5,008 in 2010 – a 25% real-terms increase after accounting for inflation.
The increase is probably due to rising rents, student loans and the cost of living crisis, and underlines the divide between renters and homeowners, whose properties are usually worth more than their mortgage debt.
But the distinction is not academic: women with assets – usually savings – at the age of 23 earn 11% higher wages by the time they reach 33, with a 5% premium for men. Women with assets of more than £1,000 at 23 are significantly more likely to report “excellent” health later in life. And anyone with financial assets is more likely to vote or volunteer.
Although student loans repayments are exempt for young people earning less than £27,295 who started their courses after 2012, the burden of repayment makes it harder to build up a nest egg. “Even student loan debt is a barrier to people building up financial assets,” Snell said.
“It’s worrying, but not surprising, that levels of indebtedness are rising. Politicians need to tackle debt, and the broader problem that millions don’t have any financial assets, as a priority, because this issue is damaging our economy, our social fabric and even faith in our democracy.
“We had initiatives like the Child Trust Fund scheme in the past; we can and should consider bold asset-building policies again, like a citizens’ inheritance that gives everyone a lump sum when they reach adulthood, funded by higher taxes on wealth, to ensure that everyone has a stake in the economy.”
A third of the people who turned to StepChange, the debt charity, for help last year were aged 25 to 34, according its chief client officer, Richard Lane, who said that was a “huge disparity” since people in that age bracket only make up 17% of the UK population.
“Younger adults typically tend to be private renters, sometimes with lower or more insecure incomes, and tend to experience more transitional life events, like having children, that increase costs,” Lane said.
“All of these factors can contribute to a more squeezed income or reliance on credit to make ends meet.”
StepChange is increasingly helping people who owe money on gas, electricity, water, council tax and other household bills. YouGov polling for the charity in January found that 35% of 25- to 34-year-olds were showing signs of financial difficulty in the previous three months, and 15% had used credit, loans or an overdraft to survive until payday, compared with 10% of UK adults.
Lane said: “The rising costs associated with running a household is making it harder for people to save and build financial resilience to protect them from future financial shocks – creating a harmful cycle of debt for more and more young people.”
Source: theguardian.com
