Context

The transition from childhood to adulthood can be a tough one, particularly for young people from low-income families. Young people face the challenges and upheaval of leaving their parental home, moving into the world of work and beginning to build a family. But for young people today the challenge is even more difficult because they must do all of this in the midst of a struggling economy.

The financial climate, including recession, government spending cuts and structural problems such as the high cost of housing are impacting on young people and it is possible that the current generation of young people in the UK will be the first since the second world war to fare worse in economic terms than their parents.

Those on low incomes, in insecure employment or not in work may be more vulnerable to financial shocks and lack the safety net that would help them deal with emergencies.

The study

The paper reports the results of a programme of research that included a literature review and three primary research components:

• An online poll conducted on behalf of IPPR by YouGov of 1,504 young people aged 16 to 29 on incomes less than the national median
• Three deliberative workshops with 18 young people in attendance at each: 16 to 22-year-olds in Manchester on less than median incomes, 19 to 25-year-olds in London with a range of incomes, and 22 to 29-year-olds in Midsomer Norton (a small town just south of Bath) on less than median incomes
• Interviews with 10 stakeholders with expert knowledge of the financial challenges facing young people including government officials, academics, representatives from youth organisations and people involved in delivering financial education services

This paper presents evidence to show the extent of young people’s vulnerability to financial shocks and argues that savings have an important role to play in enabling them to better weather periods of difficulty.

Findings are interwoven with contextual data from other sources such as ONS data on ratio of youth to adult unemployment.

Detailed findings from the poll were published in a separate briefing in February 2012 (Bradley 2012).

Key findings

• 44 per cent of young people believe their financial prospects are worse than their parents’ when they were young compared to just over a quarter (28 per cent) who thought that their own prospects were better
• If they became suddenly unemployed, over half (55 per cent) of survey respondents said they would make ends meet using savings, but answers to other questions suggest most have savings significantly below the minimum level recommended in case of financial emergencies by financial advisers (three months of post-tax income). Less than one-third of respondents had £3,000 or more – the level of savings that would be appropriate for an after-tax income of £12,000 a year, roughly equivalent to gross earnings of £14,000 (around 25th percentile of the income distribution). The concern is that without an effective safety net young people are more likely to turn to short-term or doorstep lenders who charge high rates of interest.
• Key influences include the unaffordability of saving given the rising cost of living; spending and saving priorities (including prevailing culture around debt and spending): family influence; financial literacy and education and upbringing; and the type of savings products available.
• • When local authorities become responsible for providing crisis loans, they should require young people to participate in coaching to reduce the likelihood of future loans.
  • The government should make contributions into Junior ISAs (or bringing back Child Trust Funds) and introduce a new life-course savings account with an incentive that matches savings up to a certain level.
  • Policymakers should make a positive case for asset-based welfare policies, particularly those that focus on giving young people a better start to their working life, in conjunction with developing the concept of financial citizenship.
  • The Money Advice Service (MAS) should develop a campaign targeted specifically at young people to explain the basic financial products they will require during their lifetime.
  • There should be an overhaul of financial education – in conjunction with the MAS campaign – to ensure that all 16 to 18-year-olds are literate in basic financial acumen.
  • Financial providers, particularly banks, money advice organisations and voluntary bodies, should take a more proactive approach to promoting saving.

Points to consider

• • The methodology provides a single snapshot of the views and issues facing young people in relation to saving.
  • No information on the sampling methodology and size of sampling errors.
  • There is evidence from other studies that financial resilience increases with age and some discussion of the findings within this context would have been useful.
• • The financial policy context has changed since 2012 and so at least some of the recommendations (on welfare policies, financial products) may no longer be relevant.
• • Limitations due to age of study and fast-changing context.