It’s no secret that there is a lack of affordable housing in Britain, and everyone seems to have an opinion about why Millennials can’t afford to buy their own homes. Despite the shortage of homes, however, endless heaps of criticism has been piled upon Britain’s youth. The problem is that if you’re cash-strapped it can be hard enough to get by day to day, without even thinking about saving money to buy a house.
But, with self-made millionaire, David Bach, claiming that the ‘average homeowner to this day is 38 times wealthier than a renter,’ and saying that ‘if millennials don't buy a home, their chances of actually having any wealth… are little to none,’ perhaps it’s time for a rethink.
Should home-ownership now be the primary financial aim of everyone?
Let’s look first at why Millennials are so short of cash.
To begin with, we have the issues that affect everyone: inflation has consistently risen for the last decade, while wages have more or less stagnated – Millennials are thought to have the dubious honour of being the first generation to earn less than their parents, thanks to the way in which salaries have idled since the global economic downturn (GEC). The GEC can also be blamed for the fact that UK interest rates have been at an all-time low, so those Millennials who have been able to save a few pennies have had very little assistance from the banks (0.25% of assistance until very recently, to be precise) in making that money grow. And as all of this has been going on, the cost of living has also increased, almost to crisis point, and with ‘Brexit’ looming, this is unlikely to change.
The difference between Millennials and previous generations, is that they began their working lives in the midst of all of the financial chaos, so they didn’t have an opportunity to make hay in the good times, like everyone who came before them. While everyone’s earnings have more or less frozen, most people from Generation X and before had already had time to build up to a more tenable salary. They’re still feeling the pinch, but from a more advanced position. Add in large student loans that need to be repaid, and there’s little wonder that Millennials struggle.
So, if cash is so tight, how can Millennials increase their wealth?
As we’ve already mentioned, according to self-made millionaire, David Bach, the biggest single difference that anyone can make to their own financial wellness is to own their own home. His argument is that everyone has to live somewhere, and in renting your accommodation you’re simply giving your money away.
As Bach says in his book, The Automatic Millionaire, "As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!" And if the current demand for property remains the same, the likelihood is that should you ever come to sell, as long as you keep the building in a reasonable condition – you'll be living there, why wouldn't you? – you will, in all probability be quids-in at the end of the transaction.
That is all well and good, but one pressingly obvious question remains: if money is tight how do you even start to save the 10% deposit necessary to buy your first home?
If you’re trying to increase your ready cash, the one thing that all experts, without fail, agree upon is that first you need to clear your debts. Now, student loans don’t really count in this equation, as unless you’re lucky enough to bag a windfall of some description, your repayments will automatically be deducted from your salary once you’re earning £21,000 or over, and paying off the debt early is pointless as it achieves nothing and should your financial situation deteriorate (here’s hoping that it doesn’t, but you never know what’s around the corner), you may find that you’re among the numbers who have their debt wiped out after 25 years. So, forget about your student loans and focus on the debts that matter.
Seven out of ten British adults have in excess of £6,000 debt, with one in five Millennials owing as much as £10,000, not including student loans. The average credit card charges 15% APR, which means that if you’re one of those people with £10,000 sitting on plastic, you’re throwing away £1,500 in interest EACH YEAR. With some cards charging a high of 22.99%, that figure could rise to £2,299. What an incredible waste – if you were able to save that much each year, you’d have the deposit for a £200,000 house in just over eight years. Contrastingly, if you only make the minimum monthly payments, this is never going to change, and saving money will become increasingly difficult. So, lesson one: clear your debts. Lesson two: look at ways to make your money work for you.
With the aforementioned interest rates being what they are, savings accounts are no longer a good place to keep your money. Even the best cash ISAs offer no more than 2.15% interest at the moment, so savings will be very slow to grow. It makes far more sense to investigate low-risk and high-return investments.
Now, you have a range of options available if you want to find a strong return for your cash, without taking on high-risk strategies such as trading stocks. Each investment still comes with its own risks – that’s the nature of the beast – but with careful cash placement, diversifying and spreading your investment, you can more or less mitigate those risks. So, what’s available?
Sticking with the property theme, you might be interested in REITs (Real Estate Investment Trusts). If you have a lump sum available, but not yet enough to be used as a deposit for your own home, you could try using it as a deposit for someone else’s. REITs use investor’s cash to purchase properties and rent them out, your return is a proportional cut of that rental income. The average ROI (return on investment) for REITs is around 10.5%, and because there is currently such a high demand for housing, your investment property will rarely be empty, meaning that you’re unlikely to experience many gaps in your income. REITs are also available for commercial properties.
REITs are relative newcomers to the investment world. For a more traditional option, you might want to look into dividend-paying stocks. Returns are often smaller – in the region of 2.5%-8% - but dividend stocks do provide a regular income – usually quarterly – paid in cash. The dividend is related to the financial well-being of the company, and is that company's way of saying ‘thanks for buying our shares’. It can be confusing, and you'd do well to consult an independent financial advisor before committing to anything, but it is a well-established way to make your money make more money, particularly if you reinvest your interest.
Another fun way to increase your cash is to get paid for shopping. Now, we’re never going to encourage anyone to use a credit card if they can’t afford to cover each monthly payment in full, but if you use an incentivised credit card with a strong rewards scheme for all of your everyday essentials, you can make a fairly decent return – up to 5% with the bigger names, albeit for a limited period – for basically doing nothing.
Finally, there’s P2P (peer to peer) loan investing. Imagine that you need a temporary cash injection to buy a new car or fund a personal project. P2P lending platforms facilitate private loans, allowing those with a little extra cash to fund the projects of those who need cash, but either can't, or don't want to, get it from traditional financial institutions.
FastInvest has been working in the P2P field since 2015. The company’s original aim was to democratise investment, making it possible for anyone to put their money to work. So, if you invest in P2P loans with FastInvest, you can begin your portfolio with as little as €1 – or as much as €100,000, if you have that kind of cash kicking around. Rates of return typically sit between 9% and 13%, and most investments are fairly short-term – between one and 12 months. Because all loans are pre-checked by certified credit institutions prior to being accepted by FastInvest, there is very little risk associated with each loan, but the tiny bit that remains is nullified for the investor, by FastInvest’s default guarantee, which means that should a repayment be missed, FastInvest covers the deficit for the investor. The company also offer a buyback guarantee, in the event that any investors need to access their cash quickly. If you’re curious, you can find out more about the system here.
Owning your own home used to be a standard aspiration; something that you had to work for, but wasn’t totally out of reach. In the current climate, millions of people view homeownership as a dream. The truth is that yes, it really is harder than it has been for very many years to get a foot on the housing ladder, but that ladder could still be within your reach if you used your money wisely.