Young People Prioritize High-Risk Investments Over Debt Repayment

Written by: Susannah Streeter and Sarah Coles

  • There are 1.8 million households in arrears.

  • 16% of those who are in arrears are also investing at the same time.

  • Among Millennial and Gen Z households, this rises to 70%. Among Baby Boomers it’s 6%.

  • Separate research from the FCA found there’s a risk younger people are getting involved in higher risk investments, including crypto currency.

Unless otherwise stated, figures are from the special edition of the HL Savings & Resilience Barometer on efficient use of money: Efficient Money Use report | April 2024 | HL

‘’Younger people are putting high-risk investments ahead of debt repayments, leaving them in a highly precarious position. While for many people investing is a habit which really can boost long term financial health, it’s counterproductive if you are struggling in the red.

It’s extremely worrying that among Millennial and Gen Z households who are in arrears, 70% of people are investing, or speculating, when they should be focusing on getting out of debt and building up their financial resilience. Of those in arrears in the poorest slice of society, 28% of households are investing, compared to 10% in the richest portion of the population. 

Our research backs up earlier findings from Britain’s financial watchdog, the FCA, which has warned repeatedly that younger investors are floundering in dangerous waters, by investing in high-risk assets like crypto currencies.  It found that two thirds (59%) claim that a significant investment loss would have a fundamental impact on their current or future lifestyle. 

The crypto ‘wild west’ is an unpredictable and financially dangerous arena but it’s still luring young people in, many of whom are hoping to make a quick buck and potentially cancel out their debts. For many this is likely to be wishful thinking due to the highly volatile value of coins and tokens. 

Rules changes mean that firms marketing crypto to UK consumers have had to introduce a cooling-off period for first time investors, who have second thoughts about parting with money they can’t afford to lose. But with the FOMO still so strong and young consumer fearful of missing out on a craze, far too many are still taking a rollercoaster ride with their finances.”

“Young people may be running before they can walk, putting high risk investments ahead of debt repayments. The results don’t show whether they invested instead of repaying debts. If they did, then this is always a bad idea. You should never be skipping debt repayments or falling behind on bills in order to put money into investments. 

Alternatively, they may have invested in the past, and then gone into arrears more recently. While investments are for the long term, and it’s never a good idea to be a forced seller, the sensible option may well still to be to use investments to pay arrears, and then assess how you can manage your budget better in order to keep on top of debt repayments in the future.

While it goes against what any financial expert would recommend, it’s easy to see why they may be in this position. If money is incredibly tight, it’s perfectly understandable that people will look for a magic bullet, to try to find a way to lift them out of financial difficulty. It’s one reason why in this position, people will consider games of chance. However, this is not how investment works.

A get-rich-quick gamble of taking a high-risk investment with something like crypto currency runs a huge risk of backfiring, so you end up losing money – and in a worse position than you started – with added arrears. If you have high-cost short-term debts, then making repayments should be your priority. Once you’re on top of this, you can look to rebuild your resilience elsewhere, including sensible investments.

For an awful lot of people there’s no easy solution, because they don’t have savings or investments they can use to pay their arrears, and they tend to have much less surplus income – at £30 on average, leaving them little left over to prioritise debt repayments with. If you’re in this position, the first step is to cut back any possible expense you can. If you have already tried everything, it’s worth speaking to those you owe money to as soon as possible, to try to find a compromise which includes lower payments. If this feels too daunting, you can speak to a debt charity, like Stepchange, who can speak to them for you. If you can’t come to an arrangement, they’ll also take you through the other options until you can find something that works for you.”

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