In the headlines this week, we’ve seen the recommendation that every 25-year-old is given a one-off payment of £10,000 to help address the growing imbalance between generations.
While we can speculate all day about whether this sort of financial redistribution is ever likely to happen, or even a good idea in the first place, it does raise an interesting question: what does £10,000 really mean for an average young adult?
Paying back debt
According to UK charity The Money Charity, the average credit card debt for adults in the UK was £2,604 as of February this year. This suggests that a £10,000 lump sum could go a long way towards helping somebody in their mid-20s become relatively debt free, putting them in a much better position for saving.
Of course, the average amount of student loan debt is a lot higher – but as this type of debt doesn’t affect your credit rating and is paid relatively to your income, it’s a far lower priority than other types of debt. As many students struggle to pay for living costs while at university, it can be easy to turn to credit cards or overdrafts. It seems that £10,000 would be very helpful for getting people in this situation back to ground zero.
Buying a home
Unfortunately, people looking to hit this milestone are likely to need a lot more than £10,000 to make it happen. Average first-time deposits across the UK range from £20,000 to over £100,000 depending on the desired area, with cheaper homes up North and more expensive dwellings down in the capital.
This means that a small windfall is unlikely to offer what’s needed to get a 25-year-old onto the housing ladder, especially if they’re looking to buy alone. So if home ownership is one of your future goals, it’s important to start saving as soon as possible – and to take advantage of deals such as dedicated ISAs.
Training for a new job
£10,000 will barely touch the costs of an undergraduate degree, but it could be enough to cover other training costs or help towards additional education. Online courses offering skills such as coding or accreditation for specific careers can often come in under the £10,000 mark. By helping a young adult become more employable, they could also provide a great return on investment.
Of course, the idea of young adults being given £10,000 to set them up in life may seem more like fantasy than reality. However, understanding how much money you need to cover different life goals – and weighing them up against each other – is vital for anybody who wants to take control of their financial future. Based on our analysis, it seems like £10,000 would be a useful sum for any 20-something… even if you have to set it as a savings target, rather than accept it as a gift.