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Published 02 April 2024
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Why Millennials Struggle With Debt

The rising cost of living affects people of all ages, but millennials may have additional odds stacked against them, leading to increased lifestyle debt. We spoke to three finance experts to understand the factors putting millennials at risk of significant debt-related worries and share tips to avoid overspending.

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The high cost of living may no longer be a crisis but our latest new normal. Yet, many Brits want to maintain the lifestyle they had before the country’s economic struggles gave household budgets a beating. 

Coupled with a comparison culture and perceived social pressures to keep up with peers, many UK adults are spending beyond their means, leading to higher levels of personal debt. New research by NerdWallet UK has found that one age group particularly relies on credit cards, overdrafts and unsecured personal loans to fund their lifestyle: those aged between 25 and 44.

Understanding income and expenditure may be one of the key building blocks for financial wellbeing that millennials (people born between 1981 and 1996) need to get to grips with.

Once you’ve looked at the money you’ve got coming in compared with your outgoings, you can either look for ways to generate more income, or decide where to reduce your spending,  says James Yelland, a spokesperson for The Money Charity.

Where millennials missed out 

In the UK, financial literacy was added to the national curriculum for 11- to 16-year-olds in 2014, meaning that anyone born before 1998 started their adult life with no formal education in how to manage their money.

Millennials are “the generation just before financial education would have been put into the curriculum” explains Yelland.

This lack of education could be a factor in why this age group may struggle with overspending. NerdWallet’s latest study revealed that 25- to 34-year-olds are the most likely age group to find themselves in debt. More than two in five (44%) of this age group uses credit cards, overdrafts or personal loans at least sometimes to pay for their lifestyle. Meanwhile, 18- to 24-year-olds, who will have had basic money lessons at school, may be less likely to be spending beyond their means.

Family pressures 

The 25 to 44 age bracket is typically when people are most likely to be raising a family, whether that’s taking time out of work to have their first child, or – for older millennials – supporting teens and young adults.

“People don’t want to sacrifice their lifestyle,” says Sarah Brill, a certified money coach and financial wellbeing speaker. “They don’t want to sacrifice the things that are important [to them] like going on holidays with their family or the latest phone or a nice car.”

Brill also notes that due to the high cost of rent, young people are living at home with their parents for longer, which may be eating into the budgets of older millennials.

Instant gratification

Given how rapidly the cost of living has gone up, big financial life goals such as buying a house can feel unattainable for many people and fewer millennials are homeowners compared with previous generations. Our experts think this is one of the reasons more people are using debt to fuel their current lifestyle without considering their future finances. 

“For most people, instant gratification wins,” says Brill, who attributes part of Britain’s debt problem to the combination of one-click purchases and buy-now-pay-later (BNPL) solutions, which allow consumers to delay paying for items or spread the cost of purchases over a longer period. 

Borrowing can be a sensible financial strategy under the right circumstances, but it’s vital to make a plan for paying it off to avoid unsustainable credit card debt. The lack of a plan can lead some people to borrow more, taking out additional credit cards to help them cover the repayments on their existing debts.

“I don’t think people do the maths because they don’t have the money upfront. It’s become so easy just to borrow that money. People aren’t making the educated decision as to whether they want to consciously buy that product,” Brill explains.

The invisibility issue

The transition from cash to digital payments is another factor that may be disproportionately affecting millennials. “People who are now in their 40s were probably brought up spending cash, which they could physically see,” says Brill. “We’re moving into this cashless society where everything’s so invisible people don’t have that conscious thought of where is my money actually going?” 

It’s this invisibility of our money that can exacerbate tendencies to spend beyond our means, leading more people into greater debt.

Most people don’t know where their money is going, whether they’re earning £23,000 a year or £150,000 a year, agrees accredited financial coach Emma Gosling. “I think we spend on autopilot because it’s so easy to tap and go,” she adds.  

Like many of us, Gosling recalls watching her mother withdrawing a week’s worth of cash to cover groceries and other household outgoings in the 1980s and ‘90s, and seeing the money physically go down. “Now it’s 24/7… you go online, you just hit the buy button and it’s gone,” she says.

3 hacks to avoid overspending

Start by having an honest conversation – with yourself or a trusted friend or family member – about where your money is going. Create a budget and review it regularly. Get to know your spending patterns by checking your bank statements each month to identify where your money has been going.  

If you’re considering credit cards, overdrafts, personal loans or BNPL, take time to check the interest rates charged by different providers and work out the total amount of interest you’ll owe. Avoid using BNPL unless you are sure you will be able to pay off the balance in full within 30 days. If you’re unsure how much your bank will charge you for going into your overdraft, ask. Some banks have a calculator to help you work out the extra you’ll pay by using the overdraft on your account.

For online purchases, particularly those marketed on social media, pause to make a conscious decision about each purchase’s return on investment. Considering whether or not that product or service will get you closer to your goals is a key part of building your financial fitness.

Image source: Getty Images

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