FinKratt

Financial Planning for Young Adults

kaspar@finkratt.com — Tue, 13 Aug 2024 13:20:31 +0000

Nearly 50% of individuals in the European Union live paycheck-to-paycheck, which significantly blocks their ability to save or handle unexpected expenses.

International Youth Day is a global celebration of the potential of young people, making it an ideal time to reflect on the importance of financial literacy and planning for young adults. At FinKratt, we are dedicated to empowering you with the knowledge and tools necessary to defeat financial stress, escape the paycheck-to-paycheck cycle, and achieve long-term financial stability.

The Financial Landscape for Young Adults

Nearly 50% of individuals in the European Union live paycheck-to-paycheck, which significantly blocks their ability to save or handle unexpected expenses. This challenge is especially prevalent among young adults who are just beginning their financial journeys and managing significant obligations such as student loans and housing costs. According to the European Commission’s Financial Competence Framework, financial literacy is vital for making informed decisions about budgeting, saving, investing, and managing debt, all of which are needed in today’s financial environment.

Across the pond, the U.S. Treasury also underscores the importance of financial literacy as a national strategy, advocating for educational programs that equip individuals with the necessary financial skills from a young age. This approach aims to improve financial decision-making and overall financial well-being, which is fundamental for achieving long-term economic security.

FinKratt’s Approach to Financial Empowerment

At FinKratt, we go beyond traditional budgeting to offer a personalised and strategic approach to financial planning. Here’s how our platform can help you take control of your finances:

1. Personalised Roadmaps

Our primary focus is helping you achieve financial security by building an emergency fund and, most importantly, eliminating debt. We understand that debt can be a significant burden, holding you back from financial growth. That’s why FinKratt offers the best available strategies, such as the Snowball and Avalanche methods, to help you systematically reduce and eventually eliminate your debt. But we don’t stop there—our ultimate goal is to prepare you for financial growth. As we continue to evolve, we plan to expand our personalised roadmaps to tailor them even further to your unique financial goals, ensuring your financial journey is not only secure but also empowering and growth-oriented.

2. Cash-Flow Management

Rather than focusing on restrictive budgets, FinKratt emphasises effective cash-flow management. By guiding you in managing the flow of money in and out, we help you maintain financial stability and flexibility. The Consumer Financial Protection Bureau (CFPB) emphasises that developing strong savings habits can protect you from financial shocks and reduce stress—FinKratt’s approach ensures you have the cash flow to build those habits.

3. Real-Time Feedback

Knowing how well you’re managing your finances is crucial. FinKratt provides real-time feedback, comparing your financial data with peers to give you a clear understanding of your progress. This insight not only helps you stay on track but also allows you to assess your earnings and potential. By understanding where you stand, you can better position yourself to negotiate a raise or explore opportunities to maximise your income.

4. Financial Companionship

Navigating your financial journey can be daunting, but you don’t have to do it alone. FinKratt offers financial companionship—we plan to be a supportive guide that stays with you every step of the way. Whether you’re building an emergency fund, eliminating debt, or increasing your income, we provide the encouragement and assistance you need to succeed. As the Federal Deposit Insurance Corporation (FDIC) highlights, managing your finances effectively is key to avoiding long-term financial strain—FinKratt’s companionship ensures you’re never navigating these challenges alone.

Join the FinKratt Waitlist

FinKratt is designed to be more than just a financial tool; it’s your digital companion in achieving financial independence. While our application is not live yet, you can join our waitlist to be among the first to experience this innovative platform.

Inspired by the mythological Kratt—a creature designed to amass wealth for its creator—FinKratt is here to help you take control of your finances with confidence. By following our strategic roadmap, you can break free from the paycheck-to-paycheck cycle and start building a prosperous future.

Ready to Take Control?

This International Youth Day, commit to your financial empowerment. Join the FinKratt waitlist and start your journey towards getting rid of financial stress today. In the meantime, for more insights and resources, explore the European Commission’s Financial Competence Framework and the IMF’s youth-focused financial resources, both available in our references below.

References:

European Commission, ‘Financial Competence Framework for Children and Youth‘ (2023) <https://finance.ec.europa.eu/system/files/2023-09/230927-financial-competence-framework-children-youth_en.pdf> Accessed 12 August, 2024.
International Monetary Fund (IMF), ‘Youth Financial Resources‘ (2023) <https://www.imf.org/en/About/Partners/Youth> Accessed 12 August, 2024.
US Department of the Treasury, ‘National Strategy for Financial Literacy‘ (2020) <https://home.treasury.gov/system/files/136/US-National-Strategy-Financial-Literacy-2020.pdf> Accessed 12 August, 2024.
Federal Deposit Insurance Corporation (FDIC), ‘Money Smart for Young Adults‘ (2022) <https://www.fdic.gov/resources/consumers/money-smart/> Accessed 12 August, 2024.
Consumer Financial Protection Bureau, ‘Youth Financial Education‘ (2023) <https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/> Accessed 12 August, 2024.

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Living Paycheck to Paycheck in the EU and Estonia

javiermom1 — Mon, 22 Apr 2024 14:55:00 +0000

Many in Europe face the tight grip of living paycheck to paycheck, but do they even realise it? And what does living paycheck to paycheck even mean?

What does it mean to live paycheck to paycheck?

The expression ‘paycheck to paycheck’essentially describes an individual who would struggle to meet their financial obligations if unemployed. Often referred to as the working poor, these individuals manage day-to-day expenses but are unable to save, leaving them vulnerable if they lose their primary source of income[1]. In this state, making ends meet is possible, but financial advancement is not.

The term living ‘paycheck to paycheck’ is commonly used in the US, but in Europe, we typically refer to this situation as ‘financial vulnerability’, which is a similar concept[2].

Statistics in the EU and Estonia

In 2020, 46.2% of EU citizens did not have enough savings to maintain their lifestyle for three months or more without income, while 53.8% did. In Estonia, these figures were slightly more stark, with 51.7% unable to sustain themselves compared to 48.3% who could[3].

The 2020 figures were significantly influenced by the unique economic conditions during the COVID-19 pandemic, which saw a surge in the gross household savings rate across the EU. Typically, the average savings rate used to be around 11% of gross disposable income. However, in 2020, it spiked to an unprecedented 18.5% as individuals and families reduced their spending due to lockdowns and other restrictions. By 2021, the rate had adjusted slightly to 16.4%, and the latest statistics from 2022 show a return towards normalcy at 12.7%[4].

As savings rates are projected to stabilise around the historical average of 11% by 2024, it is likely that fewer EU citizens will have sufficient savings to support themselves for three months without income.

How do we stop living paycheck to paycheck?

There are two main approaches to tackling financial vulnerability: through (1) State Assistance or (2) Individual action. State help often involves unemployment protection schemes, which provide a basic safety net but are not a comprehensive solution for maintaining one’s standard of living during tough times.

1. State Assistance: Falling Short

Unemployment benefits aim to keep people above the poverty line during personal economic downturns, but they’re usually not sufficient to preserve the standard of living. Additionally, they do not address the underlying issue of financial literacy.

The rules for these benefits vary significantly across the EU; for instance, you might be eligible for 24 months of benefits in one country but only 12 months in another[5]. This inconsistency and the fact that they do not equip individuals with the skills needed to manage their finances long-term, shows why we cannot rely solely on such schemes.

In fact, relying solely on unemployment benefits when things go south not only risks reducing your standard of living temporarily, but also perpetuates a cycle of dependency that obstructs long-term financial improvement.

2. Individual Action: The Path Forward

Addressing financial vulnerability on a personal level typically involves spending less than we earn. This can be achieved by either reducing spending to increase savings, or boosting income—both routes aim for the same outcome. To successfully manage your finances, it’d be wise to create a budget, reduce debt, and research any potential tax benefits. However, taking these steps is easier said than done… And where do you even begin?

There is no universal solution, but at FinKratt we’ve developed a financial roadmap to help guide you through these challenges. Our mission is to empower you to navigate financial decisions with ease and confidence.

Currently, FinKratt is in its proof-of-concept phase, tailored specifically to Estonia’s financial reality, so while the principles behind our tool can be applied globally, our immediate goal is to cater effectively to Estonian users.

In the future, we aim to expand FinKratt’s reach, making it the preferred resource for individuals aiming to improve their financial health globally.

We invite you to test out FinKratt for free and to share your feedback! All submissions are anonymous.

References:

Kagan, J., ‘Living Paycheck to Paycheck: Definition, Statistics, How to Stop‘ (updated 23 May, 2022) <https://www.csis.org/analysis/european-unions-digital-markets-act-primer> Accessed 21 April, 2024.
Midões C., and Seré M., ‘Living with reduced income: An analysis of household financial vulnerability under COVID-19‘ (2021) Centre for Economic Policy Research, Issue 63, pp. 73-92.
Eurostat, ‘Financial vulnerability in households‘ (updated 30 October, 2023) <https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Financial_vulnerability_in_households>
Europa Website, ‘Unemployment abroad‘ (updated 11 December, 2023) <https://europa.eu/youreurope/citizens/work/unemployment-and-benefits/unemployment/index_en.htm> Accessed 22 April, 2024.
Yanatma, S., ‘How much disposable income do households across Europe save?‘ (30 November, 2023) <https://www.euronews.com/business/2023/11/30/how-much-do-households-save-of-their-disposable-income-across-europe> Accessed 21 April, 2024.

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