Gen Z

Although generational cutoff points are by no means an exact science, Gen Z is typically used as a catch-all to categorize those born between 1997 and 2012. This means the oldest of the generation have already begun entering the workforce and earning incomes—well on the road to self-sufficiency.

While somewhat less directly impacted than their Millennial peers, older members of Gen Z also grew up amid the lingering financial impact of the 2008 financial crisis. They witnessed their parents’ nervousness over retirement savings and mortgages. On the plus side, it’s spawned a generation that’s actively avoiding debt more than any previous generation at this stage of their lives. But it’s also nurtured a much more skeptical view of what ‘money’ represents.

Gen Z members have a generally more conservative, risk-averse investor mindset. They often prize life experiences more than material possessions, and tend to be strong believers in and advocates for more stringent corporate governance and socially responsible business practices. In short, as a community, they’re far more driven to ‘do good’ than to ‘do well.’

Begin Planning for the Future

As a Gen Zer at this early stage of your financial life, as you begin to take on increasing responsibilities, it’s essential for you to start down the right path toward long-term success.

Removing future appreciation from your estate, by gifting assets that you expect to substantially appreciate before you die, is one of the major advantages of making lifetime gifts. This can be especially useful for real estate or shares of a business that have the ability to leverage through marketability discounts or which have substantial potential for appreciation.

This means adhering to sound basic financial principles such as:

• Saving more than you spend each month
• Establishing an emergency fund (three to six months of living expenses) to cover any unexpected income disruptions and avoid having to access retirement savings, which could trigger tax penalties
• Keeping debt to a minimum
• Building a strong credit rating for future needs

Keep your primary focus squarely on savings. Along with your emergency fund, try to regularly contribute to both a tax-deferred retirement savings account as well as a more liquid taxable investment account. And keep a close eye on your personal financial balance sheet (e.g., spending vs. savings) each month so you can make any necessary adjustments before issues arise.

Financial Outlook and Challenges

A Bank of America study¹ found that Gen Zers rely on financial assistance from parents and family.

• 52% of those surveyed said they don’t make enough money to live the life they want and cite the cost of living as a top barrier to financial success.
• Many said they are delaying milestones and are not on track to buy a home (50%), save for retirement (46%), or start investing (40%) within the next five years–even though they are working toward those goals.
• To offset growing expenses, the study found that two-thirds (67%) are implementing lifestyle changes such as cutting back on dining out (43%), passing on events with friends (27%), and shopping at more affordable grocery stores (24%).

As you take on more and more personal responsibility, diligent financial planning will become increasingly important. You could try to design your own plan, but it’s often a good idea to sit down with a Financial Advisor early on to help get you on the right path towards success. The same holds true for any major life events such as marriage, the birth of a child, a major salary increase, buying a home, or receiving a significant inheritance.

Embrace Long-Term Investing

The good news is, Gen Zers are more likely to reach financial goals than older generations, according to Charles Schwab Modern Wealth Survey 2024². In fact, almost half of Americans feel they are better at investing their money, noted the survey. Learning how to invest early not only provides you with a long-term horizon that helps reduce risk, it also affords you more time to benefit from the power of compound growth.

Try to maximize your tax-deferred contributions to any employer-sponsored retirement plans (making sure to at least defer enough to receive the full amount of any employer matching contributions) as well as your individual IRA.

You’ll also want to take time to learn about the differences between traditional contributions (where taxes are deferred until you begin taking distributions in retirement) and Roth contributions (where taxes are paid up front but distributions are tax-free in retirement). It can be very beneficial in retirement to have a healthy mix of taxable, tax-deferred, and tax-free assets to draw from. So Roth IRA contributions— especially early in your career when your income tax rate may be low—are worth exploring.

Keep in mind too, that parents can open a custodial IRA or traditional IRA for any Gen Z children who are under age 18, and minors who have any earned income from independent part-time work such as babysitting, landscaping, etc. are allowed to contribute to the account.

Lastly, remember that despite short-term fluctuations, investing in stocks can offer the potential to earn a high rate of return³. Try not to be overly conservative with your investment allocation considering the decades you have ahead of you before retirement.

Leverage Technology for Budgeting and Debt Management

Even more than the previous Millennial generation, Gen Z is exceedingly tech savvy when it comes to information gathering and app usage. You grew up in an age where technology has been a foundational part of your life from almost day one. Not only are you competent in navigating new software, but you’re also better equipped with the skills required to leverage online budgeting apps as well as digital financial management tools to automate bill payment, monitor credit reports, stay on top of cash flow to avoid excessive debt, and invest.

Although 69.1% of Gen Zers are currently saving some amount of money⁴, many find it challenging due to inflation. In addition, credit card debt is on the rise among Gen Z members who are relying on them to cover costs due to inflation⁵.

While most of Gen Z realizes that excessive debt is a bad thing, getting a handle on debt now can not only get your savings back on track, but it can also deliver continued benefits for years to come—in the form of more favorable interest rates on mortgages, business loans, and/or loans for major purchases. Start by paying down any consumer credit cards you own, as the interest rates on these are often high. Yours is a generation that values experiences over products. But exotic vacations and traveling the world can carry a high price tag. Try to be careful about spending money and make a concerted effort to avoid the all-too-common trap of impulse spending.

Seek Advice from a Trusted Source

Did you know that talking about your particular financial challenges and money worries has proven to have a positive effect on anxieties? The sooner you act, the more opportunities you’ll have at your disposal and the easier it will be to alter course. Talking to a Financial Advisor is a great place to start to help you make better and smarter financial decisions.