Young Generations Face Debt Crisis Due to Inadequate Financial Planning, Research Shows
The millennial generation, now in their 40s and the first to grow up connected, is more likely than previous generations to have debts and takes longer to move out of their parents’ house, buy a property or a car. In debt and without assets to call their own, like their parents, Generation Z (1995 and 2012), now in their early 20s, is in the same situation, facing low wages, debts and defaulting on loans. How can we prepare young people for better financial education?
Recent research conducted by the Central Bank and Serasa Experian shows that young Brazilians are not able to pay their bills. Consumer culture also has a negative impact. Professor Daniel Bergmann, from the Finance Department of the School of Economics, Administration, Accounting and Actuarial Science (FEA) at the University of São Paulo, a specialist in financial education and investments, explains that the reasons range from poor financial education to the rising cost of living.
Young people need to find a balance between leisure activities – in bars, clubs and concerts – and financial planning. The financial education expert’s tip is the 50, 30 and 20 rule, that is, “50% of income for essential needs, 30% for leisure and 20% for savings or investments, aiming for balanced management”, he explains.
Financial education
Financial education is already part of the school curriculum in several countries, but here in Brazil it is still not included in school mathematics. The teacher advises on the importance of financial education in elementary school, as even the Organization for Economic Cooperation and Development (OECD) recommends. The lack of financial planning in young people can significantly compromise their adult lives, leading generations to poverty, “mainly affecting the purchase of durable goods such as real estate and vehicles, in addition to compromising the ability to invest in continuing education,” he says.
Young people in debt can suffer serious psychological problems. The University of São Paulo offers a financial guidance course for the entire community. This is called the Financial Guidance Service (SOF). The creation of a culture of savings and financial planning should be encouraged from a young age. Developing a mindset focused on balancing current consumption and future financial security is essential for economic well-being. The use of digital tools and financial control apps can help young people monitor their spending and maintain financial discipline. In addition, it is recommended that they seek knowledge about investments, especially to take advantage of the power of compound interest in the long term. In short, building a solid foundation of financial education is a crucial step towards avoiding debt and promoting financial independence in adulthood.