You've done your A levels, now for your owe levels

The long term future of pensions and saving in general is looking bleak as new generations of newly qualified graduates try and enter the job market saddled with debt, with no hope of being in credit for many years.

As more and more students are encouraged to go to university after school as GCSE passes improve year on year (23 years and counting), the banks must be rubbing their hands with glee at the prospect of a new generation of long term debtors customers. What chance have those students departing university got of paying off their student debt, made up over three or four years of fees, loans, credit cards, student union bar tabs, in the short term?

Research in an annual survey by university guide Push suggests average debt is projected to rise to £25,000 for those starting university this year. Add to that the Coalition signalling the fact that tuition fees will potentially almost double and a possible progressive loans system put in place, many young people will leave full time education massively in hock. What way is that to start their fledgling careers?

For those living in the South East, life for graduates could be even tougher. Apart from the cost of living compared to other parts of the country, most 20-30 year olds will be looking to get on the property ladder before they are able to instigate their long term savings and investment plans, such as pensions and ISAs etc. Every Englishman's house is his castle and we Brits see bricks and mortar as our favoured long term investment, yet many first time buyers face a hefty initial deposit. Where are they going to get this money? Borrow off their folks or join forces with friends to purchase are hardly examples of being in the full throes of adult independence. Would-be homeowners are facing an uphill struggle to get on the housing ladder and all the early indications are that it’s not going to get any easier – despite lenders seemingly trying harder to ease the pain. However, many of the recent mortgage rate reductions have been aimed towards borrowers with a 20% plus deposit, with mortgage products for first time buyers still not available from some high street lenders.

According to the National Housing Federation, the average 21-year old today will have to wait until they reach middle age before they can buy their first home. Those aiming to buy in London are warned that they will have to save up until they’re 52 years old to afford a mortgage.
Therefore as first time buyers are pushed into middle age before achieving a suitable deposit on a house, their ability to save for their retirement is massively shortened. This in turn will put extra pressure on the state pension system and why we will all be forced to work longer as the retirement age creeps up. Increased longevity and a lengthy retirement is not a lip-smacking prospect when you cannot afford to live through it. Experts advise us that pensions are the most tax efficient way of saving, but with no access to these funds and a credit easy environment of live-for-today-and-to-hell-with-tomorrow, people need to be educated to see the value of saving for their future. So, if you want a higher income in retirement than you get from your State Pension, you need another source of income as well. It’s never too early to start saving for your retirement, but in all probabilities many graduates will defer starting their pensions saving.
So, what can be done to help these impoverished ex-students as they start their working lives manacled to their banks? Well, for a start begin the process of financial education in secondary schools to begin the process of helping them with their money matters. This could continue into their tertiary education and actually point out the amounts of potential debt that can be incurred by pursuing further education, advice on how they can manage their debts, the benefits of savings and investments, provide guidance on the help they can get from the likes of financial advisers and financial websites.

In the meantime, we all look forward to the onset of auto enrolment into NEST, the government-led default pension scheme into which all employees will be auto enrolled starting from 2012, which will go some way to getting millions started into the savings habit, and in particular saving for their retirement. But does the average graduate even know about NEST and its benefits, let alone what an annuity is ...?

JA