Younger people are putting high-risk investments ahead of debt repayments, leaving them in a highly precarious position. While for many people investing is a habit which really can boost long term financial health, its counterproductive if you are struggling in the red.

Its extremely worrying that among Millennial and Gen Z households who are in arrears, 70% of people are investing, or speculating, when they should be focusing on getting out of debt and building up their financial resilience. Of those in arrears in the poorest slice of society, 28% of households are investing, compared to 10% in the richest portion of the population. Our research backs up earlier findings from Britains financial watchdog, the FCA, which has warned repeatedly that younger investors are floundering in dangerous waters, by investing in high-risk assets like crypto currencies. It found that two thirds (59%) claim that a significant investment loss would have a fundamental impact on their current or future lifestyle. The crypto wild west is an unpredictable and financially dangerous arena but its still luring young people in, many of whom are hoping to make a quick buck and potentially cancel out their debts. For many this is likely to be wishful thinking due to the highly volatile value of coins and tokens. Rules changes mean that firms marketing crypto to UK consumers have had to introduce a cooling-off period for first time investors, who have second thoughts about parting with money they cant afford to lose. But with the FOMO still so strong and young consumer fearful of missing out on a craze, far too many are still taking a rollercoaster ride with their finances.

Sarah Coles, head of personal finance, Hargreaves Lansdown: Young people may be running before they can walk, putting high risk investments ahead of debt repayments. The results dont show whether they invested instead of repaying debts. If they did, then this is always a bad idea. You should never be skipping debt repayments or falling behind on bills in order to put money into investments. Alternatively, they may have invested in the past, and then gone into arrears more recently. While investments are for the long term, and its never a good idea to be a forced seller, the sensible option may well still to be to use investments to pay arrears, and then assess how you can manage your budget better in order to keep on top of debt repayments in the future.

While it goes against what any financial expert would recommend, its easy to see why they may be in this position. If money is incredibly tight, its perfectly understandable that people will look for a magic bullet, to try to find a way to lift them out of financial difficulty. Its one reason why in this position, people will consider games of chance. However, this is not how investment works.

A get-rich-quick gamble of taking a high-risk investment with something like crypto currency runs a huge risk of backfiring, so you end up losing money and in a worse position than you started with added arrears. If you have high-cost short-term debts, then making repayments should be your priority. Once youre on top of this, you can look to rebuild your resilience elsewhere, including sensible investments.

For an awful lot of people theres no easy solution, because they dont have savings or investments they can use to pay their arrears, and they tend to have much less surplus income at 30 on average, leaving them little left over to prioritise debt repayments with. If youre in this position, the first step is to cut back any possible expense you can. If you have already tried everything, its worth speaking to those you owe money to as soon as possible, to try to find a compromise which includes lower payments. If this feels too daunting, you can speak to a debt charity, like Stepchange, who can speak to them for you. If you cant come to an arrangement, theyll also take you through the other options until you can find something that works for you.

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Susannah Streeter

Head of Money and Markets and Podcast host for HLs Switch Your Money On

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Notes to Editors

Hargreaves Lansdown is the UKs number one share dealing platform, offering retail investors the choice of over 8,000 UK and overseas shares, ETFs, investment trusts, Gilts and Corporate Bonds, as well as 4,000 fund options. HL clients have access to a full suite of tax-wrappers and Active Savings, the UK's largest retail cash savings platform.

There is no charge for monthly investing via direct debit into FTSE 350 shares, selected investment trusts and selected ETFs. Online equity dealing costs a maximum of 11.95, and less for frequent traders. Clients can also place stop losses and limit orders.

Clients can hold equities for free in a Fund and Share Account and charges are capped at a maximum of 45 and 200 per year within an ISA or SIPP wrapper respectively. There are no charges for investing in a Junior ISA.

HL champions the retail investor and encourages shareholder engagement through our free digital voting service and facility to allow shareholders to remotely attend company AGMs. We use more than 25 brokers to find the best price for each trade and pass on all price improvements and savings to clients in full. Over 1.85 million clients trust us with 149.7 billion (as at 31 March 2024). Find out more about HL and our history, what its like to work with us, and how we support our community.

Our Switch Your Money On podcast puts the world of investment under the microscope. Each fortnight, our experts discuss the latest news impacting savings and investments and our special guests give the inside scoop on key industry sectors.

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