How to fix the finances of Gen Z

Money Clinic with Claer Barrett

Recorded live at the FT Weekend Festival, this episode explores the systemic financial hurdles facing UK Gen Z, specifically regarding stude

Key takeaways

• Student loan interest rates reached 8% in 2024, significantly increasing lifetime repayment burdens for graduates.
• Gen Z is entering the investing market earlier than Millennials or Gen X due to algorithmic finance content on TikTok and Meta.

Main topics

• Student loan reform
• Gen Z investing trends

Notable quotes

Student loans are a tax on ambition.

Conclusion

Despite daunting structural challenges like student debt, Gen Z can le

Transcript preview

Speaker 6 (0:00) The new episode of The Next Five is all about CFOs in an AI world. Patrick Villanova at Blackline joins me. CFOs are inherently risk averse. We have to be very prudent when we implement AI. As does Olya Brasi at Highgate. My rule is no human owner means no go live. And Gina Gutsite at FTI Consulting. There's no excuse. You're the CFO. You're signing the name to the financial statements. Listen to The Next Five wherever you get your podcasts. Enjoyed. Hello, Speaker 1 (0:42) this is Claire Barrett from the Financial Times, and I am thrilled to bring you a bonus episode of Money Clinic on how to fix the finances of Gen Z, recorded with a fabulous panel at the FT Weekend Festival. I decided to dedicate my session to the 20-somethings in Britain because they are facing the toughest start to adult life than any generation in half a century. From the weak jobs market and stagnant salary growth to the unfair and broken student loan system, life is getting more expensive and key financial milestones like leaving home, buying a property, even starting a family are becoming harder to achieve. But Gen Z are financially savvier than their older peers. You could argue this is through sheer necessity, but it's also through better financial education. And thanks to the generosity of FT readers, Flick... The FT's financial literacy and inclusion campaign is now teaching teenagers financial life skills in over 1,000 UK schools, and they supported the recording of this podcast. As usual, what you're about to hear are our opinions. Nothing we say is intended as financial tax or investment advice, but we do hope that it helps broaden the understanding of the unique financial challenges and opportunities Gen Z are facing. Now, let's get on with the show. Speaker 7 (2:03) Welcome to the Money Clinic podcast, coming to you live from the FT Weekend Festival. So the panel joining me today all come from the other side of the phone screen. They are expert financial content creators who have close to a million followers between them. So please give a big FT Money tent welcome to Abigail Foster, the former accountant turned financial educator and author. Speaker 7 (2:36) We have Michael Taylor, the trader and FT columnist better known as Shifting Shares. We have Talani, an investment industry professional who shares her views online as Talani Talks Money. We have Oliver Gardner, founder of the student loans campaign group Rethink Repayments. And last but not least, we have Brian Burns, director of personal finance at Moneybox, who is sponsoring this session. Thank you, Brian. Speaker 7 (3:17) OK, so let's dive straight into student loans, the biggest issue afflicting young people in this tent. Ollie, are you hopeful that our new Prime Minister, Andy Burnham, will do something about student loans at the Budget on the 28th of October? Speaker 2 (3:32) Yeah, I'm hopeful. We have Lucy Powell, an Education Secretary now, who back in February went on LBC and spoke about interest rates on student loans, particularly Plan 2 student loans, as being egregious. One of her sons has a plan to sue loans. And when she became education secretary, I was fully... sort of embracing or expecting her to row back on those and say, oh, no, you know, there's nothing we can do about it. But she's stuck by those comments, which is amazing. And the student loan system has been called broken. It's been called unfair. And I think what we've seen is a real shift in communication style from this government, where Rachel Reeves used to say that student loans were fair and proportionate, which everyone knew was just a blatant lie. But now we've got a government who are at least acknowledging there's a problem. And I think... all of us would agree that actually as a generation who feels that we've been left out of policy discussions it's really important that the Burnham administration does make this their issue and shows that it is something that they are willing to move on. Everyone in the audience who has a student loan would say I'm making these really significant payments. every month, right, 200, 300 pounds, and I still see my balance rising. How is that alone? Like, we can't pay it off. It's almost impossible. And I think that as a generation, we are feeling really disenfranchised. And that policy just isn't really working for us. So I think it's something that, you know, is a real opportunity for Andy Burnham and his government. And if they don't do anything on it, quite frankly, we'll try and rip their heads off, I think. Just as an example of how mental it is, in 2024, I paid an 8 % interest rate on my student loan. 8 Speaker 1 (5:11) %? Speaker 2 (5:11) 8%. And the changes that have been made to student loans since 2016 will end up costing us £22,000 more over our lifetimes versus the terms that we took them out. If a bank did that, if a bank changed the term of your mortgage, you would take them to court and you would win. But because we're young people... And we're not necessarily a massive voting bloc. They think that they can just get away with it. Speaker 7 (5:36) OK, so, Abby, I'm going to bring you in here. Now, what impact is this scandal, because, frankly, it is a scandal, Ollie, having on younger people's finances, but also their trust in the government? Speaker 5 (5:46) Well, their trust is completely damaged, and quite rightly. You know, we were expected to make huge financial decisions at 17 years old. You can't even get a credit card at 17. And we were told, right, it'll be the same as a phone bill. Cool. Okay. It's really not. They don't trust the government to do anything right by them because they've proven time and time again that whilst they expected us at 17 to make huge life decisions, they've been able to retrospectively change that terms and those contracts. And, you know, and then when you see government after government basically say, sorry, it's just not prevalent. It's not important. All they're saying is you're not important. Speaker 7 (6:19) Well, one angle that I focused on in the FT is that student loans are a tax on ambition that's affecting the economy because graduate workers are holding back. They're trying to avoid crossing into these really punitive tax levels where they might only be keeping 29 pence in the pound. Now, what are you all hearing from your followers? I mean, Talani, is this something that people are talking to you about? Speaker 4 (6:44) Lesser student loans being the tax on ambition, what tends to be the leading rhetoric when it comes to the tax on ambition is things like the 45 % tax rate, the 100k tax trap where you have the 60 % marginal rate of tax once you cross the 100k threshold in earnings. I think student loans definitely... Because that can make those thresholds even worse. Exactly, exactly. So definitely that then compounds the issue. But what I do find tends to be more of... a talking point when it comes to tax and ambition is the ones where there's no end in sight, right? So with the student loan, the more you earn, the more you pay, and obviously the more you pay, the sooner you clear that debt, right? And then it's out the way. But with the marginal tax rate of 45 % and the 100-year tax trap, that doesn't go anywhere, right? The more you earn, literally the more of your salary gets clawed into those higher tax bands, and that then tends to be viewed more... I would say within the higher-earning tax brackets as the tax on ambition, but that's what student learning is. Speaker 5 (7:40) Do you know if, so if, and Ollie and I have talked about this a lot on social media, if you're in the higher rate, so you're in that 60 % tax trap, and then you add on an undergrad and then a postgrad, which so many careers need now, you can be effectively paying 77 % tax. Could you imagine explaining to someone, oh, we asked you to do extra work, but you're only going to take home 23p on the pound. Why would you bother doing it? You just wouldn't. And then we go, well, why are the next generation, like, ambitious to leave or to go into careers, you know, well, I was going to say, go to different countries. But then, you know, and then we ask, why aren't the next generation bothered about their finances and growing their careers? And it's because of this. Like, the government just aren't setting them up to succeed. Speaker 2 (8:21) They are going to different countries. I think a year ago, people would tell me that they were going to go to Dubai. I think Dubai is now potentially less of an attractive option for obvious reasons. But the number of people that tell me they're going to Canada and the new big one, Poland, and they're like, why are you going to? And they're just because I will keep, you know, vastly more of the money that I earn to spend on what I want to spend it on. Sausages. Sausages, exactly. And vodka. Vodka Speaker 7 (8:44) is a much better idea. Ollie, why aren't politicians realising it's not just the young vote that counts? It's everyone's vote. Speaker 2 (8:52) I actually do think that so many parents care about it. When I speak to my own parents about it, I've got two older sisters who went to university as well and have planned two loans. I spoke to them about it and I was like, did you understand how bad these were? And they said, to be quite honest with you, it was the only way you could go to university. We couldn't send pay for you to go up front. And everyone else was doing it. All of our friends were sending their kids with these student loans. So we didn't really question it. And now they know about it. They're absolutely furious. And we hear a lot from parents. on Facebook and Instagram who actually feel really guilty that their kids now have these massive student loans that have ballooned so much that they couldn't even pay them off with their lump sum from their pension. And I do think that, yeah, there are lots of, you know, middle-aged and upwards people who are really angry about it as well. Speaker 7 (9:37) Yeah. Now, Brian, I want to bring you in here. So what do you think this is stopping? young people from doing. Now at Moneybox, you know, you've got insight into how people are behaving with their savings, with their investments, which they're building up for these milestones in life, which are becoming harder to achieve. Speaker 3 (9:52) Yeah, absolutely. And like, I think the first thing I'll say is a statement of the absolute obvious, but we will be much better off financially as a country if the 9 %