Jack Han investigates the borrowing bubble Generation Y has blown.
October 21, 2009
Generation Y is struggling to manage their finances, with the vast majority resorting to borrowing and lending informally between friends and peers, a St George Bank survey has found. This begs the question to a generation of credit-savvy spenders – just what will it take to learn the savings lesson?
The survey of 1000 Australians aged 18-29 years has found that 87 percent admit to using the ‘informal bank’ of their friends by paying their dinner, drinks, entertainment needs, and bills, with the expectation that the favour will be returned.
With the average Gen Y respondent borrowing and lending $31.92 per week, St George estimates that about $2.6 billion is changing hands in the form of IOUs between the Gen Ys each year. What’s even more concerning is that the report found one in four Gen Ys have never tried budgeting or saving in their lives.
This could be due to their reputation as the ‘credit card generation’. With Australia’s credit balance of $45 billion across over 14 million accounts, the average card has $3,131 of debt accruing interest by the month. On interest rates of 18 percent for standard cards, Gen Y will be losing $617 a year unless their credit debts are controlled.
For example, if Jen wanted to buy a $3,000 computer, instead of purchasing it on credit, she could consider saving towards her goal with a high interest savings account earning up to 5.21 percent p.a. By making a plan to save just $200 a week, Jen can afford her laptop with $495 left over in just four months, and save hundreds in interest payments from avoiding credit card debt.
Of course, the point of credit is that we can buy whatever we want, whenever we want it. This is where a few handy tips can help you avoid treating your friends like walking teller machines.
- If you’re already in the habit of borrowing cash from other wallets, tell your friends that you plan to stop. They can ease your temptation simply by closing their banks.
- You also need to close your lending services. The more you lend, the more that you’ll expect to be paid, which will just continue the spending trend.
- Self control can come in the form of direct transfers, which will funnel a fixed amount from one of your accounts to the other. By knowing that you have to put away a certain amount per week or month, you’ll begin to adapt your spending around a tighter budget.
- And make your savings plans public, so that you’ll be even more motivated to stick to it. And start comparing savings accounts online for the best rates so you can start earning money, with your own money.