'Generation Debt' sapped of savings potential

According to a new study from insurer LV=, renters among the late-Millennial generation (25-34 years old) are one of the least financially resilient groups in the UK.

Based on research conducted with over 9,000 people, the first instalment of LV='s 'Income Roulette' research found that more than half (55%) of 25-34 year olds fall short of the Money Advice Service (MAS) recommended amount of savings to be financially resilient. Resilience can be defined as someone who has 90 days' worth of outgoings in savings, however the research found that a third (34%) of late-Millennials could only survive for one month or less if they lost their income. These figures are even more pronounced for renters of this age, who make up almost half (45%) of the group.

Two-thirds (65%) of 25-34 year olds who rent don't have the level of savings specified by MAS – almost double the national average (37%) – and 45% could only cope for one month or less without their income. In addition, more than two in five (44%) aren't confident in their ability to handle a personal financial crisis, again far higher than the UK average (33%).

This group of renters among late-Millennials are particularly struggling with debt, leading to LV= dubbing them 'Generation Debt'. 43% say they can't save any money at all with student debt being this group's biggest obstacle to saving (40%), followed by credit card bills (32%). Half (51%) have some form of unsecured debt and one in five (20%) owe more than £5,000. Further to this, double the national average are in their authorised overdraft (21% vs 11%) and this group are three times more likely to have a loan from friends or family (12% vs 4%).

If they were to lose their main source of income, fewer than one in ten (7%) renting 25-34 year olds have a form of income protection insurance to fall back on, despite the fact cover of £1,000 a month can cost less than £10 a month*. In fact, almost one in four (22%) would plunge themselves into further debt by putting even more on their credit cards and 3% even admitted they would turn to a pay day lender.

To tackle financial insecurity in the UK, particular among older Millennials who rent, LV= is calling on the Government to ensure that the new Single Financial Guidance Body (SFGB) has a specific remit to focus on increasing financial resilience among consumers. This should include looking at the role of individual income protection insurance and considering how Government and industry can increase the take up of private insurance to protect consumers against financial shocks.

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.

"We want the Government's new single financial guidance body to have a specific focus on helping build UK financial resilience. It's vital that more is done to encourage individuals and families to prepare and protect themselves against the consequences of accident, sickness, or disability."

Despite so few people in this group having an income protection insurance policy, the chances someone would need it are higher than they might think. LV= calculations show a 30 year-old, female, non-smoker who wants to retire at 65 has a one in four (26%) chance of not being able to work for three months or more in their working life. This increases to around one in two (47%) when looking at the risk of being unable to work for two months or more.

LV= has also come up with five tips to help 'Generation Debt' take control of their finances and build up their financial resilience:

1. Create a budget and try to stick to it: The best place to start is jotting down all your incomings and outgoings. It sounds obvious, but it can help identify any pinch points you could easily cut back on, such as takeaways or shopping. There are a number of apps available now to help you keep track of your finances or you can visit the Money Advice Service website and use the free budget planner.
   
   
2. Clear loans or credit cards with savings: If you're just clearing the minimum payment on loans and credit cards despite having cash in the bank, then it's worth doing the maths to work out what's actually doing more for you. Your savings could be earning little or no interest, while your payments cost you money in interest.
   
   
3. Order your credit report: It pays to stay on top of your personal financial data. Experian and Noddle provide you with your credit score as free service, or you can sign up for a trial with Equifax.
   
   
4. Review your insurance cover: It's easy to think 'it'll never happen to me', but when you're already in a precarious situation financially losing your main source of income could be catastrophic. Check with your employer if they offer Income Protection and consider speaking to a professional financial adviser about the benefits of private insurance products – some advisers will do this for free and cover can be less than £10 a month*.
   
   
5. Use the internet wisely to save big: Comparison sites are one quick way to save money but you can also consider using voucher code websites or buying online through cashback sites like Quidco or Topcashback where you can get money back on purchases.