Younger Aussies have flocked to buy now, pay later (BNPL) services like Afterpay and Zip, but the financial impact for some is shocking.
In 2018, 26 per cent of BNPL users were aged 18 to 24, despite that age group only making up 12 per cent of the Australian population, according to the Monash University Australian Youth Barometer report.
During 2018-19, young people were more likely to incur late payments using BNPL and, of those who had missed a payment, 47 per cent were aged 18 to 29.
A shocking 49 per cent of young BNPL users reported cutting back on essential items to meet repayments; 50 per cent took out an additional loan and 50 per cent reported being late paying other bills - including other loans - to meet repayments.
The report also found that financial literacy among young Aussies was very low in comparison to other age groups, with women falling far behind.
“Financial literacy refers to the skills and knowledge that everyone needs to interact with the traditional financial market, especially having a working understanding of interest rates, inflation and diversification,” the report said.
“In 2016, 55 per cent of adult Australians were financially literate. There is a significant gender difference: 63 per cent of Australian men were financially literate compared with 48 per cent of Australian women.”
And the difference in financial literacy is persistent across age groups. Younger Aussies had the lowest levels of financial literacy. Of those aged 15 to 17 years, only 28 per cent of males and just 15 per cent of females were financially literate.
Twenty-five per cent of young people experienced financial difficulties often or very often in the past two years, the report found.
Among those, Aboriginal and Torres Strait Islanders were twice as likely as other young Australians to report experiencing financial difficulties often or very often. Young people who had a disability were 1.7 times more likely to report experiencing financial difficulties often or very often, compared with those who did not have a disability.
What can be done to help financial literacy?
The report found that young people were the group most vulnerable to sudden drops in their income or extra expenses and were in most need of support to make ends meet.
“Targeted structural solutions are needed to address significant gaps in financial literacy among groups that often experience marginalisation, such as young people with a disability, those from migrant and refugee backgrounds, and those living in remote areas,” the report said.
“Financial education needs to prepare young people to understand and critically judge both traditional and emerging financial-market products and services, so that they understand the risks and benefits, and take advantage of services that best suit their needs and preferences.”
The report found that while young people were strategic in the way they managed their money, not all had the same opportunities to save their money or invest.
“There is a clear need for policy support but also for policymakers to listen to young people to understand the most effective ways to support them,” it said.