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On the Bamboo blog this week, we’re going to look at how to get rid of millennial debt, how it affects an entire generation of adults and a few ways to start working towards a debt-free life. We’ve talked about the plight of millennials (people born between 1980 and 2000) time and time again – we’ve looked at why they’re still living with parents, why they’re facing a lifetime of renting and how government decisions might affect their lives – and this week is no different. We’re still looking at how an entire generation has been hit by a perfect storm of an economic crisis followed by wage stagnation, increased cost of living and austerity – but we’re going to try and be a little more optimistic about it.
So, while we’re still going to look at some of those wince-inducing stats and touch on things that don’t make for easy reading, we’re also going to look at some ways to break the debt cycle and make your way to financial freedom.
Millennial debt: the stats
“Credit cards, student loans, mortgages, car payments — today’s millennials have more debt than ever, and studies show that there can be a long-term health effect on the stress this causes. Two-thirds of millennials aged 23 to 35 have at least one source of long-term debt, while one-third have more than one source.”
From a Yellowbrick study, Millennials And Debt—The Long-Term Effect
Recently, LV= published a study that looked into millennial debt – and the results aren’t pretty.
The Income Roulette research found that over half of millennials fall short of having 90 days’ worth of savings tucked away for a rainy day, while over a third of those surveyed (34%) would only be able to survive for less than a month if they lost their income. This figure rises to 45% among those who rent privately. And for those millennials that rent, the numbers continue to get worse.
More than 4 in 10 renters (43%) said they couldn’t save because of student debts, while a further 3 in 10 (32%) had credit cards debts. More than half (51%) had some form of unsecured debt, 21% were in authorised overdrafts, and 12% were living off of a loan from friends or family. To top it all off, one in five (20%) owed more than £5,000. Commenting on the study, Justin Harper, head of policy for protection at LV=, said: “It’s worrying that so many older millennials have no idea how they would cope in a personal financial crisis, but those stuck in the cycle of renting are suffering even more. It’s clear that people in this ‘Generation Debt’ are at risk of finding themselves struggling to make ends meet if they lost their income.”
Why are Generation Debt struggling with millennial debt?
All too often, you’ll see a headline declaring that millennials are spending their money on holidays, avocado toast, or something else that suggests that the under 35s are fiscally irresponsible – and that’s why they’re in debt.
‘There is a pronounced build-up of indebtedness amongst the younger age group. We should not think this is reckless borrowing. This is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.’ Instead, Bailey places the blame on ‘high rental costs and lack of income growth… which lead young people to turn to credit in order to make ends meet. There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age.’
As the Huffington Post put it, for this generation, being debt-free is the new rich.
4 easy ways to combat your own millennial debt
Alas, that Beanie Baby collection you worked so hard on when you were younger – and that you were always told ‘that’ll be worth millions one day’ – hasn’t quite turned out to be the solid investment in your future you thought it would be.
But don’t give up hope.
A quick note from Team Bamboo: in this article, we’re not going to suggest get rich quick schemes or one-size-fits all solutions to your debt. We know that money and finances differ from person to person – and that the path to a debt-free life isn’t about doing one thing that works for everyone (otherwise, everyone would be doing it, right?) but about doing lots of little things that work for you.
Tip #1: Budget, budget, budget…
No matter how much money you have, we can’t recommend having a budget enough.
Everybody has fallen into the trap of splurging after payday (when that money in your account feels like a huge number) and then feeling the pinch as they month wears on – and a budget helps you spread your income over the month much easier. But it doesn’t just prevent splurges. It also helps you get a solid idea of your overall financial situation, including how much money you owe, where your money comes from and, importantly, where you can cut back.
By the way, it’s 2018 – you don’t need to bother with that pen and pencil stuff anymore, there are lots of apps that’ll help you budget!
Tip #2: Embrace the treats
We love The Financial Diet here at Bamboo – it’s a book and blog that focuses on little things you can do to make your way to a debt-free life. And after you’ve done that, to live comfortably. And while it’s a great resource for frugal tips and pinching the pennies, one of the things we love about it is that it doesn’t encourage you to live like a monk in order to save.
In fact, one of their Ten Commandments (and all ten are worth checking out) is:
” Make indulgences and splurges a part of your financial life, but treat them as the rare, exciting thing they are. Too many treats aren’t treats anymore, they’re a lifestyle.”
Anybody who has ever been on a diet will know that avoiding your favourite foods and treats for too long makes you hate your diet and – before long – decide to give up. (We’ve all been there!) The great thing about moderating your treats is – they become a reward for good financial habits and help you tuck away money every single day.
Tip #3: Look at ways to bring in extra income
Side hustles are all the rage at the moment, and for good reason: they’re a great way to diversify your income.
Walking your local dogs, tutoring local students or even doing some freelance work in the evenings is a great way to pick up extra money to tuck away, pay off debt or even cover your rent.
But side-hustles can be a minefield.
That’s why we looked at the Good, the Bad and the Ugly of second jobs – so that you don’t end up stuck with an extra job that’s more side-hassle than side-hustle.
Tip #4: Be mindful of your money
We know, this sounds like something people say when they get back from some months travelling around Asia, but it has been proven that being mindful of your money can help you save, stop excessive spending and – this is the good bit – feel happier when you’re doing it.
This blog post is a great introduction to being mindful of money, if you’re unsure of where to start.
For more tips and tricks to help you break free of the millennial debt cycle, head over to the Frugal Lifestyle section of our blog – there’s advice on everything from working from home for a little more cash to how to keep the cost of renting down.
- Author The Bamboo Team
- Posted 15 May 2018