Why we should start getting to grips with personal finances in our 20s: Sarah Coles

Younger people are generally less likely to embrace tougher money issues until later, but a big part of this is a function of the world they’re growing up in. Those in their 20s and 30s now are likely to have headed off into adult life later. More people tend to study for longer, and in the process there’s a good chance they will have amassed debts that make it much harder to get to grips with everything else.

Meanwhile, higher rents mean we take longer to move out. With the average rent in England now swallowing up 26% of income (23% in Yorkshire and The Humber), and intense competition for rental properties, it can be a huge step to go it alone. Then when we’re in a place of our own, and paying these enormous rents, it’s even harder to buy somewhere. On average we can’t afford to buy until we’re 30, and while we consider ourselves adults well before that, if we’re still relying on the Bank of Mum and Dad to fund part of the deposit, we’re not quite standing on our own two feet.

There’s some evidence to suggest that these barriers were lower when older generations were younger. It can help to look back to 1980, when there was an awful lot more affordable and social housing around, and we spent an average of 10% of our income on rent. At that point we could buy the average property for less than five times average incomes, whereas now it’s more than eight times in England. Plus, anyone who went to university would have fallen under the grants scheme rather than student loans. This may be why older people tend to say they felt like an adult when they were younger – and retired people said they were adults by the age of 24.

The figures also produced something more unexpected, in that the more that people earn, and the more they develop their plans – to include things like investment or working towards a specific date for retirement – the more likely they are to say they felt like an adult about money later in life. Higher-rate taxpayers, for example, say they didn’t feel like an adult until the age of 30.

There will be an awful lot feeding into this. Some of it could be that its only as they built their wealth that they were able to start investing and planning retirement more carefully, so they look back at that point as ‘adulthood’. For those on lower incomes, who perhaps never invest and rely on auto-enrolment, the measure of being an adult may be more to do with shorter-term goals, like paying down debt, balancing the budget and having savings – which they might be able to achieve earlier in life.

Whatever your measure of financial adulthood, waiting to feel grown up about money until we’re 26 isn’t the end of the world. However, we need to take care not to build problems for ourselves in the interim. By that age we’ll have had access to borrowing for an awfully long time, and if we‘ve been regularly overspending and running up debts, we could have built a huge financial headache by the time we’re ready to deal with it.

It means that on leaving home, despite feeling way too young to worry about money, we need to draw up a budget, so we know what’s going in and coming out of our account each month. If a young person in your life is on the cusp of moving out, this could be an incredibly useful stage to intervene. It's also worth emphasising them that this isn’t meant to be an unrealistic expectation that they’ll make the right decisions about everything all the time, but it’s a good idea for them to at least know what they’re aiming for.

If we wait until much later than our mid-20s to get to grips with more complex money issues – like pensions and investments – we could run into financial issues of another kind. For the one in seven who don’t feel grown up about money until the age of 40 – or the 7% who never feel grown up about money - there’s a real risk of putting things off that can’t wait – like planning for retirement. The earlier we can start to make sensible plans for the future, the easier it will be to save for the retirement we want – when we want it.

The key is not to feel bad about the things we’ve not been able to pick up along the way. We just need to start asking questions, or finding support, so we can close the gaps in our knowledge and skills, and start to feel good about what we’re learning instead.

Mind the protection gap

A weakening economy means we all need protection to fall back on in case of nasty surprises, but the HL Savings & Resilience Barometer has revealed some worrying gaps. With unemployment on the march and long-term sickness forcing more people out of work, it pays to check what would happen to you if you were hit by the unexpected.

When disaster strikes. it’s not just savings that prove invaluable, there are a host of insurances and employee benefits that come into their own, including sick pay and income protection, redundancy pay, critical illness and life insurance. The Barometer measures how people in each area fare for each one of these things, and Yorkshire and The Humber fell particularly short when it came to life insurance, critical illness cover, sick pay and income protection.

How much we earn plays a key role here. Pay is inextricably linked to people’s likelihood of buying to stand alone income protection and critical illness - which is focused on the highest earners. At the other end of the scale, employers offering lower pay tend to offer worse benefits packages – including sick pay and life insurance. Yorkshire and the Humber has some of the lowest pay in the country, which takes a toll. The most recent ONS figures, which go back to 2020, found that 29 of the 50 local areas with the lowest average household disposable areas were in the region. Eleven of them were in Bradford, six in Leeds, five in Sheffield, and two each in Calderdale and Kirklees.

For all of us, it makes sense to check what we have in place, and how much cover we would need if something was to happen to us. Ask what your employer offers, and revisit whether you have any extra cover in place. If it falls short, you can look into paying for stand-alone cover. It’s not always cheap – especially when it comes to income protection – but it can be worth its weight in gold.