Context

The Money Advice Service carried out the Adult Financial Capability in the UK survey in 2015. In 2016 they undertook more in-depth analysis around particular groups of the UK population with specific financial capability needs, including young adults.

Young adults (aged 18-24) have traditionally not been a key focus in British policy to improve consumer financial capability. They are in a transitional period of their lives often moving to independent living and increased financial responsibility whilst being faced with an increasingly difficult housing market, pensions and employment patterns. Earlier MAS research, the study ‘It’s Time to Talk: Young People and Money Regrets (2014), highlighted that young people are far more likely to say they experienced financial difficulty ‘all the time’; and around ¾ of individuals in their twenties admit to making money mistakes in their first years of financial independence.

The study

This study combines analysis of the Adult Financial Capability in the UK (2015) survey data with other research and interview findings:

• looking at the 744 complete responses from young adults (aged 18-24) taken the total research population of 3,461 respondents from across the UK.
• - five focus groups with a total of 23 young adults.

Key findings

Key factors that affect young adults’ ability to manage money day-to-day, to plan ahead, and to negotiate difficulties can be grouped under 1) Goals and planning 2) Financial Confidence 3) Engagement and barriers to engaging young adults.

• • Young adults can be put into three groups, namely: Planners, Drifters and Dreamers, who approach money management differently. Planners have financial goals that are supported by plans, they save more and are feel more financially confident. Dreamers have financial goals, but no plans and are less confident and tend to be anxious about the future. Drifters are the least likely to have financial goals and plans, have little confidence with their money and tend to be the most dependent on family financial support.
  • Young adults were both more likely to have financial goals over the next five years (69%) and to have plans to achieve those goals (41%) (compared to all adults aged 18+). However, planning in the main tended to be focussed on the achievement of short-term goals and ‘save to spend’ planning - sometimes down to a ‘you’re only young once’ attitude.
• • There are a number of factors that influence young adults’ financial confidence including age, gender, education, financial dependency and financial goals and planning. Young adults have the lowest levels of financial confidence compared to other age groups; only 45% rated themselves as ‘very confident’ (compared to 58% of all adults aged 18+) and females rated themselves as less confident then males.
  • Financial confidence grows not only with age, but also through learning from positive and negative experiences and exposure to a range of financial products and decision-making.
• • Where young people go for financial advice was influenced by financial confidence. For example, financially confident young adults were more likely to consult professional sources. However, for all young adults the main trusted source of information and guidance on financial matters was parents and family. Beyond this, particularly drifters did not know where to go for financial guidance. Peers were consulted, but mostly around shared financial experiences, such as comparing insurance for holidays. Banks were mentioned as another source of information, but they were also often mistrusted and perceived as “self-serving”.
  • Young adults are more likely to be over-indebted compared to other age groups, but less likely to seek debt advice. There are a number of reasons for this, such as thinking that things will improve in the future; that they will be able to overcome this on their own (particularly amongst men), plus the assumption that one needs to pay for financial advice.
  • Self-advising using the internet was common amongst all groups, particularly the use of Google. Yet, many young people felt overwhelmed by the quantity of information.

The report makes a range of recommendations for how to engage and support young adults.

Points to consider

• This timely research highlights many relevant challenges and opportunities for young adults in the UK.
• This study looks at young adults across the UK aged 18-24 in particular and can therefore not be generalised to other groups. However, some of the specific findings are likely to apply to older adolescents (16-18). For example, young people who live with their parents often remain financially dependent on family.
• The study results can be used by organisations working with young people to understand how they are perceived and what young adults need help with. It offers a wealth of practical advice for helping young people to increase their financial capability and suggests opportunities for established organisations to improve the effectiveness of their work.
• The fact that this study uses a mixed method approach is a real strength as it allows a deeper understanding of the quantitative findings, providing the contextual data that can make this research a valuable resource for practitioners.

Full report

Young adults' financial capability - full report