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A teenager's view of the 'incomprehensible' student debt problem

A teenager's view of the 'incomprehensible' student debt problem

As teenagers across the country receive their A-level results, 16-year-old Charlotte Stenning, who starts sixth form college in September, is stunned by a study into student debt levels.

Charlotte writes: 

With thousands of teenagers across the country receiving their A-level results, the student debt problem is once again a hot topic. 

The phones will start to ring as universities are inevitably bombarded by phone calls from anxious teens awaiting a confirmation or rejection from their dream university. 

As soon as a place is accepted, they will open themselves up to the tribulations of student finance.

Debt Levels

The Association of Investment Companies (AIC) has shone a light on the extent to which parents underestimate student debt. 

Research from the body shows that students think that they will accumulate an average of £37,935 in debt, whilst parents expect a debt average of £23,954.

However, the Institute of Fiscal Studies’ estimate shows that student debts could rise to over £50,000.

To me this is almost incomprehensible.

The AIC suggests investing money could be more rewarding than a cash savings account in the long term. This would be hugely beneficial for students suffering from finance complications, allowing them to avoid the astronomical debt they could accumulate.

According to the survey, if you invest £25 per month over a duration of 18 years, £5,400 of total investment could grow to £17,741.74.

An investment of £50 per month over the same time period would produce a total investment of £10,800 which could grow to £35,483.42.

For an even bigger investment of £100 per month over 18 years, the £21,600 total investment could increase to £70,966.84. This incredible amount of money could clear any student debt collected and leave extra money to finance other issues encountered by a student, such as funding a car or first home.

As a long-term saving solution, investing money in the average investment company can treble the amount of money you originally invested in 18 years.

This is an astounding revelation to me; a student about to start my A-levels with the aspiration of reaching university. There is an obvious risk that my debt levels could spiral out of control.

The debt could be avoided, a feat I did not think possible due to a preconceived expectation I had to take out a student loan, something most people do.

In hypothetical terms, if my parents had invested money per month since I was born, based on the AIC stats I would be able to clear any debts and have no need for a loan. To me this seems almost unbelievable. As Albert Einstein said: 'Compound interest is the eighth wonder of the world'.

Education on money saving options

What I also found interesting in the AIC study was that only 41% of parents are aware of the minimum monthly amount that can be invested in a stock market linked savings scheme.

There appears to be a lack of general knowledge about the options available to parents when it comes to saving money for their children.

The study showed that of the parents saving money for their children in the future, 66% save through a cash savings account and a mere 15% make investments.

To me, this reveals a huge problem. Parents are not maximising the amount of money they can save for their children by utilising investment accounts.

I understand that cash savings accounts are considered to be more stable as they greatly minimise the risk of losing money.

However, as AIC communications director Annabel Brodie-Smith points out, interest rates are very low on these accounts which is producing a minimal gain from cash saving.

'Parents are underestimating the amount of student debt their children will graduate with,' Brodie-Smith explains. 

'Those who have a long time to save towards their children’s futures may want to consider alternatives to cash to try and get the most from their savings. Interest rates are still near record lows and this will have had a significant impact on cash savings.'

Although there are clear risks with stockmarket investing, if parents are educated to start saving as soon as their child is born, we might see a reduction in the frequency of students left with astronomical debt levels.

Eighteen years of regular investing based on the data shown by AIC supports the theory that investing is about ‘time in the market, not timing the market’.

It seems clear to me that in order to remove the problem of student debt in universities and other financing problems, education on finance and methods of saving money must be incorporated at secondary school level.

What I find absurd is that we are made aware of bullying and other such matters at school, but somehow financial knowledge has been neglected to be imparted to us.

If we grow up learning about different money saving methods, we can all contribute more profusely to the economy and save in a smarter way for our children. 

The AIC has encouraged me to realise that the student finance problem is not something that should be encountered when we reach 18, but rather something that should be tackled from birth.

This would only be solved through educating more people on general financial issues at school. More people can then make judicious decisions with their money and be able to help their child clear their student debt quicker. 

We need to be exposed to methods of saving money at school and these findings by the AIC should be the trigger to make this happen.  

Charlotte Stenning, 16, was on a two-day work experience stint with Wealth Manager. She will start A-levels in Maths, History and Latin in September.  


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