Banks are jeopardising the prospects of the next generation, discouraging financial responsibility and leaving young people facing the sharp end of the credit crunch. With the Government, they have created a “gilded generation” of pampered and over-protected young people, mired in debt and unable to understand their finances.

The liberal free-market think-tank Reform’s new report, written in conjunction with the Chartered Insurance Institute and published this week, finds that the “IPOD generation” of 18-34 year olds – whom we have described as Insecure, Pressurised, Over-taxed and Debt-ridden – have been failed by the “financial establishment”.

Young people have grown up in a time of easy credit and high consumer expectations. Research by Populus, commissioned for the report, shows that they have substantial debts and minimal savings: the mean debt among 18-34 year olds is around £6,000, and 60 per cent have either no savings or less than £1,000. While the next generation have the ability and technological know-how to understand their position and take action, they are finding themselves hamstrung by an industry determined to service the old and patronise the young.

Banks and financial services are out of touch. They offer advice at a price beyond young people’s reach, and provide outdated products ill-suited to their flexible lives. Banks still focus on catering to a disappearing generation who set up home young and had jobs for life. This has created a lack of trust: our report finds that half of young people rely on friends and family as their main source of financial advice.

The situation is compounded by Government-sponsored regulation. So-called “consumer protection” policies are overprotecting young people into a state of irresponsibility, and heavy regulation of the financial services industry has pushed up the costs of financial advice.

Speaking at the launch of the paper, Julia Goldsworthy MP, Liberal Democrat Communities and Local Government Spokesperson, said that policymakers find it difficult to understand and respond to the “elusive generation”, but that there were things Government could do. An IPOD herself, she sympathised that regulation makes young people feel it is not important to understand financial products.

Ms Goldworthy also explained that it is important to look at regulation from the perspective of the consumer. Insisting on paragraphs of small print at the bottom of credit card bills is pointless if young people don’t understand how their debts actually mount up.

Young people know there is a problem, and they want to do something about it. They have been lulled into a false sense of security, growing up in a time of economic stability and historically low interest rates. The sharp shock of the credit crunch may have jolted them from their slumber, as they are challenged with burgeoning debt and a broken housing ladder.

The IPOD generation have a strong sense of responsibility and a desire to be in control of their finances – the explosion in the use of technology such as internet banking and price-comparison websites demonstrates a keenness to budget and manage their finances. But they are held back by a lack of financial literacy, the uninterested attitude of the financial services sector and excessive regulation.

Continuing this trend will result in a “generation of victims”, untrusting of Government and financial institutions, and lacking the capability to do anything about their predicament. There is an alternative: empowering young people to become a “generation of saviours”. This generation will take control of their own finances. They will demand new products from a reformed financial services industry, and will harness the freedom and information provided by Government to stimulate the economy and create innovative solutions to the crisis.

To save the next generation, Government and the financial services industry must help young people take responsibility and become financially capable.

* Dale Bassett is new media politics executive at Reform. The Reform-CII report Money’s too tight to mention: will the IPOD generation ever trust financial services? is available at Reform’s website, www.reform.co.uk.