By Jack Delosa
Figures from the Insolvency and Trustee Service of Australia show that one in five bankruptcies in Australia belongs to someone under the age of 30.
Some journalists say it's because our brains are not fully developed, others argue it's because we don't fully appreciate consequences. I think you don't have to look much further than the facts to realise that Gen Y as a generation is suffering from the same problem our debt ridden parents are; a lack of proper education. Over the last 10 years the household ‘debt to income ratio' has gone from 56% to 125%. This means that the average household spends 25% more than what they earn, every year. At the moment Australian households are in debt to the tune of $530 billion. And it's not just our parents that are good at spending what they don't have.
CPA Australia, one of the largest accounting groups in the world, released a study indicating that the average debt per person between the ages of 18 and 24 is $21,000. The spokesman for CPA Australia, Peter Mulqueen, indicates that HECS debt, mobile phone bills and credit cards are the major sources of debt for Gen Y.
This is an issue, especially for young people. Considering that the average Australian earns $57,000 each year, a debt of $21,000 before the age of 24, is a bad start to an even worse career.
When this issue has been reported in the media, the finger has often been pointed at Centrelink and there have been many calls for Centrelink to increase the Youth Allowance which is made to students.
I think this is a short term solution to a much greater problem and would be counter-productive to what we're trying to achieve. Giving us more money is the last thing we need, especially now that the vast majority of the population has demonstrated that we don't know how to use it effectively.
With companies such as Telstra making it possible to pay for a taxi, a can of coke, some groceries and a movie ticket using our mobile phone, the need for effective financial education is becoming increasingly important.
The important distinction I think for many in Gen Y to learn is the difference between an expense and an investment. Owning a home for instance, or an investment property, is generally considered an investment because it increases in value. Owning a car, is often considered an expense because usually they decrease in value, they are a depreciating asset.
Often the best outcome to come from effective financial education is the enthusiasm that comes from knowing how to build real wealth, outside of working the usual 9:00am – 5:00pm. What isn't covered in high schools or universities are the simple strategies that anyone can adopt to start building their personal net worth. Using smart investment strategies that are readily available, I believe that the vast majority of people have the ability to earn more from investments each year, than the average Australian does from working all year.
Because the current education system is doing very little to address this issue with any level of cut-through, it is important that my generation educate ourselves on the issues of debt and investments. If you can begin to develop your financial understanding at a young age and learn how to make money from investments rather than employment alone, this will be the most important skillset you learn in terms of building your own net worth and enjoying a level of financial success.
Jack Delosa is the General Manager of MBE Education. Jack has been named as one of the top 30 entrepreneurs under 30, in Australian Anthill's 30Under30 Publication. jack@teldar.com.au
