Our 20s. A carefree decade of fun and discovery?

Ten years of non-critical things that don’t impact your future too much?

As nice as that may sound, it’s far from the reality. 

What happens in your 20s has a critical impact on the rest of your life.

Statistically, you’re likely to live on your own for the first time, meet the person who you’ll spend the majority of the rest of your life with and, apparently, eat an excessive amount of smashed avocado rather than saving up for a home deposit (thank you, Mr Salt).

And your 20s could be the defining decade for your future wealth too.

A report from the Federal Reserve Bank of New York¹ studied the career progression of five million people over 40 years. The study concluded that the majority of earning increases occur in the first ten years of a person’s career – so while you will hopefully have many more years to work, your earning levels over the rest of your career will likely be dictated by the earning levels you hit in your 20s.

And while there’s an emphasis on career development throughout the decade, it’s wise to take a look at how you protect the income and any assets you are building. Because, while you may think life insurance is something people with at least another decade on you should be concerned about, it’s actually something to think about now.

Protecting future wealth

If the vast majority of your earning increase occurs in our 20s, it makes sense to protect it. Your earning potential is the greatest financial asset you have. And life insurance, combined with total permanent disability (TPD) and trauma cover/critical illness insurance and accidental death insurance, can help protect it. You may think it’ll never happen to you, but 1,753 people in their 20s were diagnosed with cancer in Australia in 2017 - 146 every month. That’s almost five people in their 20s every single day. It’s not nice, but it happens.

Look after dependants

As the decade progresses, your responsibilities will likely increase. Over 40% of children born in Australia are to mothers in their 20s³, and if anything happened to you that made you unable to work, you’d want to be able to continue life and focus on returning to good health without added financial stress.

Manage your debt

If you’ve graduated from uni there’s a strong possibility you’ll have a decent debt to accompany your degree. Credit cards. Mortgage. If you weren’t here, or if you were but unable to work – how would those debts be paid? Life insurance could help cover them. Think too, if your parents acted as guarantors on your mortgage, their home would be at risk too if your mortgage repayments weren’t kept up to date.  

It’s cheaper

Taking out life insurance when you’re young and healthy could lock in premiums that you could only dream about in your 30s or 40s.

So, while life insurance in your 20s may not seem an essential financial investment, it can play a critical role in protecting your career trajectory, wealth accumulation, and those you love. A professional can give you advice on the right levels of cover, depending on your own personal circumstances.

References

1. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr710.pdf
2. Supplementary data tables—amended: Chapter 3 Number of new cases
3. https://www.aihw.gov.au/getmedia/728e7dc2-ced6-47b7-addd-befc9d95af2d/aihw-per-91-inbrief.pdf.aspx?inline=true

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