A generation of young adults are growing up with no savings,
no pension and huge debts, financial watchdogs have warned.
The regulators say Britain is storing up huge problems for
the future because many under-40s fail to grasp basic concepts
of finance. In a massive survey of attitudes to money, the
Financial Services Authority uncovered shocking gaps in
knowledge, with large numbers unable to understand a basic
bank balance or interest rates.
It also revealed that two million households are struggling
with their debt repayments and could be 'tipped into financial
difficulties' by a relatively small change, such as a
rise in interest rates. The findings come as a Government
report shows the number of young people going bankrupt
has soared.
In 2001, 18 to 29-year-olds accounted for just 8 per
cent of bankruptcies, but this leapt to 20 per cent last
year, the Insolvency Service announced yesterday.
The Financial Services Authority survey found that:
• One in ten could not understand a basic bank
statement which said 'balance carried forward, £61';
• Four in ten have no pension and nearly a third
who did have a pension had not put any money into it for
five years;
• One in five did not understand that a savings
account paying 3 per cent interest would not 'keep up'
with an inflation rate of 5 per cent;
• One in five thinks a cash ISA (individual savings
account) invests in shares;
• Four in ten are not aware that an equity ISA
(which invests in shares) will go up and down with the
stock market.
The figures were based on the results of the entire survey,
which questioned people aged 18 to 90. But the FSA said
the findings were much worse for those under 40 and in
particular those aged 18 to 30.
Chief executive John Tiner said: 'There is a real problem
here, particularly among young people. If we do not act,
we could simply be storing up problems which will hit
us in the future.'
He said the crisis had been fuelled by the 'shop till
you drop' society and the easy availability of credit.
Mr Tiner, 49, said life for a 19-year-old was very different
now compared with when he was a teenager.
'It was difficult to get a credit card when I was 19,'
he said. 'Now you are having them through your letter
box every morning. When I was young, you did not want
the latest mobile phone or iPod because a new model came
out every three months.
Mark Sands, director of personal insolvency at accountants
KPMG, said: 'A typical bankrupt used to be over 40. Now
they are under 40 with no assets, no savings and no home.'
The FSA is planning a massive £20million education
campaign over the next two years to teach schoolchildren
and workers about money.
It found that two million households - nearly one in
ten - are at risk of falling into a financial black hole
by even 'a small change' in their circumstances.
At present, it said that about 500,000 households are
coping with serious financial problems. But it warned
that a further two million were 'only just managing as
it is', with no savings, and could fall into similar financial
dire straits if there were a change in interest rates,
inflation or unemployment.
'Most people do not make provision for an unexpected
drop in income or major expense,' the report added. 'Such
events are fairly common, even in a favourable economic
environment, and often push people into difficulties.'
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