If you are a university student, you probably know a classmate, friend or housemate struggling to cope with the rising cost of living. At the same time, the online shopping boom since COVID-19 has made it easy to spend money. You can spend after a tiring day of university tutorials or assignments. You can even place an online order during a class.

Tertiary students are vulnerable to financial strain — even bankruptcy. Young people can easily borrow and spend money when credit is easily available 24/7 through digital platforms. Research by Victoria University academics tells us that young people often lack adequate knowledge of how to manage personal finances. Similarly, research by scholars at the University of Newcastle shows that youth are are often susceptible to the harmful impacts of online credit.

With the tertiary student cohort hit hard by current inflation, Monash University senior lecturer in business law and taxation Vivien Chen says there are simple strategies students should take to safeguard their financial wellbeing.

With the latest Australian Financial Security Authority statistics showing that personal insolvency is on the rise (12.6% increase compared the March quarter 2022), there are key ways students can avoid getting into such trouble. And if they do get into trouble, there are ways to prevent bankruptcy — which, if declared, can have a long-term effect on their personal credit rating and loan borrowing in future.

MOJO News has compiled tips from a range of expert sources to help students avoid financial crisis. 

Control spending

Budgeting plays an important role in safeguarding financial wellbeing. Students need to be aware of how much they have and exercise caution in spending to ensure that their income is enough to cover their expenditure. 

This includes being aware of the hidden risks and potential harmful consequences of credit. Websites that offer fast cash and buy-now-pay-later have become increasingly popular in recent years.

Almost two-thirds (60 per cent) of buy-now-pay-later users in Australia are 18 to 34 years old, according to an Australian Securities and Investments Commission report. 

The digital interface of buy-now-pay-later apps has been likened to social media, which is familiar to digital natives, and young people have reported being drawn to the gamified experience that they offer. 

But users will be asked to pay extra if they miss an instalment due date — a hidden risk they may not realise at the time of purchase.

One of the reasons why these sorts of apps are so appealing is because they play on behavioural biases. Behavioural economics tells us that people are drawn to the prominent advertising of buy-now-pay-later as having "zero interest", "no payment today" or "pay in four instalments".

Consumers tend to make impulsive decisions based on this without searching through the fine print to see if there are charges for late payments or thinking about the potential negative consequences if they can’t pay on time. 

As Commonwealth Bank behavioural economist Will Mailer told The Australian Financial Review, buy-now-pay-later apps connect with consumers on an emotional level.

Young people may need better information on the risks and consequences of payment options, to encourage responsible use of credit. 

Call the debt helpline

As section 95A of the Corporations Act 2001 (Cth) states, “a person is solvent, and only if, the person is able to pay all the person’s debts, as and when they become due and payable". Let’s consider a hypothetical example of rising rents to illustrate how a student can become insolvent. 

Let's say a student earns $2000/month, with $1200 going to rent each month, and $800 left for living expenses (including food, textbooks, clothes and public transportation). If the rent rises, the student will be unable to pay on time and risks being evicted by the landlord.

If students are experiencing this kind of financial stress, the best solution is to look up the national debt helpline. The helpline is run by trained financial counsellors and funded by the government.

The debt helpline is a national number that anybody can call and it is for free.

By calling the helpline, students can access financial counsellors who will help them manage financial difficulties and find the best outcomes, and will try to avoid bankruptcy which has a permanent record.

Research from Monash Business School suggests that it is safer for students to seek help from the National Debt Helpline, which is run by not-for-profit organisations, rather than seeking assistance from debt help businesses that tend to be less transparent with their fees and may offer paid options when there are various free and more effective alternatives.

Talk it through

The third strategy is to talk to a trusted person about financial challenges. Research tells us that people feel very ashamed about their debt problems, so they hide these and suffer in silence, and their mental health goes downhill.

Speaking up and asking for help from financial counsellors, or others you trust, diminishes the risk of suffering in silence.This is especially important for students facing financial abuse. Forms of financial abuse include economic exploitation or control, and may be accompanied by threats to damage property, or sabotaging employment and study, according to one RMIT University study of young Australian experiences of economic abuse. 

Key factors exacerbating the risk of financial abuse include a lack of awareness, the idea that love is more important than money, and fear of conflict and rejection. 

Meanwhile, landmark research by social scientists at the University of Newcastle found that young Australians urgently need more opportunities to learn and talk about credit and debt at workplaces, universities and schools.

If you or someone you know feels overwhelmed or needs financial help, call the national debt helpline on 1800 007 007.