When Taz and I were mid 20s (quite a few years ago!), life and finances were pretty simple. We worked, got paid, saved for what we wanted and paid by cash or cheque. Our 4 kids are in their 20s, and we have no experience to share and wanted to find out – Why is personal finance in your 20s so confusing?

Introducing Haydn Martin

Haydn Martin is a fellow Uk Money Blogger who runs Perpetual Prudence, a blog devoted to investing, personal finance, and more! Many thanks to Haydn for this fab guest post, tackling ‘Why is personal finance in your 20s so confusing?’

When you reach your mid-20s it seems like everyone is in a drastically different financial situation. It can be difficult to navigate this period, to know if you’re saving enough, what to invest in, if you should change jobs, etc.

Up until this point, everyone has been on roughly the same path, resulting in a very similar financial footing. But now there is no clear path, only options. This infinite set of options leads to increasingly divergent outcomes. The people that you know, all in a very similar place financially just 3-4 years ago, are now in very different situations.

It starts off simple

At school it was simple – no-one had money, really, outside of those who worked on evenings and weekends, those who sold coveted merchandise at school, or those with excessively rich parents. No one could buy anything. Everyone was in the same boat.

University was much the same. There were those that had part-time jobs, those that had some of their expenses covered by their parents, those that had money somehow obtained via anonymous methods, but, by and large, everyone was dependent on the Student Loans Company. You had to live cheap: Tesco’s home-brand vodka; ready meals; generally any deal or student discount of any kind are really the bread and butter of any student.

These dynamics exist due to the structured and semi-definite nature of these periods of life. Everyone is channelled into the same paths and encouraged to do broadly similar things. This leads to a narrow range of outcomes, financially speaking and otherwise.

Then it gets confusing

After university, things start to diverge. Although the median starting salary for grads is somewhere between £20,000 and £25,000, the range is large. Some join grad schemes at large multinational institutions. Some go straight into corporate jobs earning £50,000+ (with some even receiving over £100,000). Some in highly-competitive industries embark on a series of unpaid internships. Some elect to travel. Some continue with education, in the form of a master’s degree and even a PhD. The more entrepreneurial start something on their own or join a startup.

This means that by the time you find yourself in your mid-20s, the people around you are in very different financial situations. That friend who has just returned from India after travelling for 3 years probably has a different account balance and financial attitude than the person who has been working in a front-office position of an investment bank (and saving diligently) during this time. The entrepreneurs probably have no money. Or a lot. Those studying for a PhD or master’s or MBA have a high earning potential…but currently approximately £0 in their bank account.

Different spending

This disparity in income leads to vastly different spending habits and thresholds. Some wouldn’t blink at spending £100 on dinner and hundreds on a night out. Others are surviving on Pot Noodle and have 5 flatmates. 

This can cause tension within friendship groups. Those that earn a lot generally want to spend a lot and what is normal, or even minor, for them is outrageous for others. This is why high-earners are drawn more and more towards their colleagues (this and the fact that they typically spend most of their time with them). 

Different saving

Higher income typically leads to higher savings. I personally know people my age with 6 figures in their account…and others with 0. The latter scenario seems to be more common: somewhere between 40% and 50% of 20-somethings have no savings at all, with only around 25% having saved more than £6,000.

There are actually two factors at play here: earnings and spending behaviour. When it comes to saving money, a high wage doesn’t mean much if your expenses are similarly high. This multiplies the disparity in earnings: high earners who like to save end up accumulating vastly more than low earners who don’t.

Closeup of stack of british pound coins

Different investing

Another area of differentiation is what you actually do with this saved money. Here, there are really two time horizons to consider. In the short term, of those that can afford to, some are taking high-risk-high-reward bets. Some are willing to drop 4 figures on the outcome of an election. Others invest in memes for fun. Obviously, many are interested in the crypto space. These short term punts have varied results, to put it mildly. Highly speculative investments like these can, and do, go to 0. Others result 5-figure gains. It’s even not unheard of to see 6-figure returns. Unfortunately, there is very little data on these types of investments (and performance), but anecdotally this phenomenon is clear.

The long term is slightly different in that it is more affected by knowledge, interest, and discipline. There are those, like this author, who are obsessed with investing. Others don’t seem to care at all. 

There seems to be a link between having money and knowing how to invest it (I am the exception to the rule). Strangely, it seems that once you are accumulating cash, how to invest all of a sudden seems to become a much more interesting topic. Again, here we see that the divergence is stark: some have 5 figures invested for the long term and sophisticated investing structures…others don’t know the difference between a share and a bond.

It’s a little difficult to tell which category is a better representation of young people in the UK. Most young people don’t understand basic personal finance concepts. Contrast this with research by Finder in August 2021 that found that around 75% of millennials and Gen Z participants who they surveyed said they plan to buy stocks and shares in the future. In 2018, over 4 million people aged under 34 held an ISA…but the average balance was under £1,000. 25% of those in the same category have no retirement savings at all.

Different goals

In fairness, this type of investing very much depends on your financial goals, as does all of the other behaviour mentioned above. This is an area of commonality between people with different earnings and savings: the Money Advice Service found in 2016 that 70% of young adults had some type of financial goal. Those saving for something specific – a wedding (it makes me sweat just typing those words), a house, a year off, etc. – will be much less likely to spend and invest, even though they could afford it if it were not for this specific savings goal. I have friends who refuse to go on holiday, for example, because they are saving in this manner.

These financial goals are just one area in which what people want out of life in general differs. Some at this age are already looking to settle down, to buy a house, to get married, to have children (although it seems most wait until at least 30 before they start doing this). 

Others still have a university-esque mindset: living as cheap as possible; getting drunk on a Tuesday; worrying about an upcoming academic something-or-other; etc. Most are somewhere in between: having finished their grad scheme/travelling/studying, they are wondering what to do next…

pigg bank and alarm clock

So what do you think?

Thanks to Haydn for this informative article. Our lot are all in very different Personal Finance places. Happily there is a wealth of information to guide anyone in their 20s, whatever their goals, mindset or position. Remember to visit Haydns site Perpetual Prudence for useful information.

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