There are a variety of challenges facing younger Americans, including the costs associated with student loans, fast rising rents, a less stable job market and a high inflationary environment. Further, the advent of NFTs and cryptocurrencies have captured many young peoples’ attention.
According to a recent survey by Investopedia, these young consumers (generally falling in the 18- to 25-year-old age bracket) are savvy concerning the stock market and virtual currencies (54% have investments of some kind) — yet just a third of Gen Z respondents feel they have more than a beginner’s grasp of financial fundamentals like paying taxes and managing debt.
After uncovering recent reports of ways in which Gen Z may be hurting their financial health through various practices, GOBankingRates spoke with Chloe Elise, CEO & founder of Deeper Than Money, to get some expert advice on the pitfalls to avoid.
Finding Financial Advice on TikTok and YouTube
Gen Zers are often lumped in as being part of the “influencer generation,” with many turning to social media for inspiration on how to live their best lives — including advice on how to manage their money. According to a new survey by Vericast, whereas other demographic groups might seek out financial advice from a banking institution or family member, Gen Z is turning to platforms like TikTok and YouTube.
As the survey noted, 34% of respondents belonging to this age group seek out financial tips from TikTok and 33% head to YouTube tutorials, while just 24% rely on financial advisors.
According to Elise, this may not be the most reliable info. “I would stress the fact that you can find an unlimited amount of advice online, but you need to find a funnel. You will hear tons of advice on social media, but the tricky part is finding what applies to you. That is the difference between giving advice to the masses, and giving personal advice,” she cautioned.
“It’s why I stress the importance of taking advantage of free advice, but also taking the next step to find an expert who can tailor to your specific situation. You can look for a certified financial coach, a financial counselor, or a financial advisor.”
Gen Z Living With Parents While Saving for Retirement, But at What Cost?
Another interesting trend seen with Gen Z workers is that many are choosing to put their paychecks toward saving for retirement while living at home with their parents.
According to The New York Times citing a June Credit Karma survey, a third of young people are living in their childhood homes even as the job market rebounds from the pandemic. Living at home is now becoming a more permanent option, especially as rents skyrocket. One financial expert that The NYT interviewed said this outcome is due to the fact that, for many, rents are now taking up nearly half of a person’s income — when typically rent should account for 20% of one’s income.
Yet, on the other hand, a large chunk of Gen Zers are saving more for retirement than previous generations. CNBC, identifying a new report from BlackRock, noted that younger workers are saving 14% of their take-home pay for the future, compared to the 12% allocated by millennials, Gen Xers and boomers. Furthermore, Gen Z has the “most confidence” in their savings.
Is this the right financial play? Yes and no, says Elise, who has another suggestion. “If you are staying at home, and are able to save on rent… I would use this time to build your emergency fund. A good-sized emergency fund (shoot for 3 months of core expenses) will allow you the freedom to get out on your own two feet with a cushion.”
She added, “Once your emergency fund is built up, I would recommend using the extra cash flow to pay off any high interest debt, or set up a Roth IRA and begin contributing. The beauty of paying off debt is that once the debt is gone, you no longer have a monthly payment to make. Less monthly payments make it easier to start an independent life on your own.”
Gen Z Holding Large Credit Card Balances
Investopedia’s recent survey noted that a third of Gen Z respondents aren’t equipped with financial knowledge fundamentals, like knowing how to manage debt. A new report supports that finding, indicating that this generation is using their credit cards at a rate three times higher than other demographics.
Credit score company VantageScore has seen that balances for this age group have increased 30% year-over-year. That figure can be placed in comparison to an 11% increase among other demographics. This is likely due to inflation, and as Business Insider notes, the fact that Gen Z incomes haven’t increased on pace with the cost of living, which has left many “zoomers” scrambling to supplement.
Elise says “less is more” when it comes to using credit cards for expenses. “A credit card can be a really awesome tool, if you use them to your advantage — not to make the credit card company rich!”
Her tip: Have a basic cash back card at your bank, and if you travel a lot, get a specific travel perk card to reap the rewards. But, she adds, “Be cognizant of the annual fee to make sure you are coming out ahead.” As she points out, the average credit card interest rate for someone with fair credit is 23.3% (via WalletHub). And if you revolve a credit card balance, you might end up paying the credit card company 23% more than you intend to.
“That gallon of gas just got a dollar more expensive if you put it on the credit card,” Elise notes. “I would recommend using a debit card until you can pay off your balance at the end of each month.”
Cash Stuffing Trend and the New Spending Plan
Remember the envelope system? Said system has now morphed into a similar trend of “cash stuffing” that has become re-popularized on social media and picked up en masse by Gen Z.
Basically, the process involves marking a number of envelopes with categories of necessary monthly payments and then stuffing them with various banknotes — a process which is meant to allocate dedicated funds for required bills before spending them elsewhere. While the system works if executed properly, some experts have noted that it’s a short-term solution… and also does nothing to help 18- to 25-year-olds in building their credit early on.
Elise’s take on the trend is to always spend in alignment with budgeting. “People should do whatever method is best for them. Budgeting is so personal… but when it comes to budgeting, I like to use the words ‘spend plan’ because ‘budgeting’ gives people the ‘ick’ factor. Instead, think of it as planning your spending!”
She adds, “I love the bucket system, which is where you look at your past spending, observe where your money is going, then look at that number and see how it feels. Is it more than you feel good about spending? Would you rather spend more in a different area? I teach my clients step-by-step how to create their own personal program with my Wealth Accelerator. It’s so cool to see it finally click for people after years.”
Gen Z Addicted to Impulse Buys
We live in a time of short attention spans and social media manipulation, which can be a bad combination when it comes to spending habits. Seeing someone post about their lavish vacation or buying into the latest fashion trend can leave viewers feeling like they should be doing the same to keep up with their peers. Such behavior, if given in to, can be devastating on one’s personal finances.
It’s a trend Elise has seen too, and she offers some advice of getting around these hang ups while also protecting your money. “Social media and the idea that we are all bombarded with ads, products and companies makes it harder than ever for us to spend in alignment. Spending in alignment is being aware and feeling confident in your purchases, and living within your means. Gen Z struggles a lot more with impulse spending because it’s so easy to see that pair of shoes on TikTok, use the influencer’s promo code, and buy them in a span of a few clicks,” she says.
“I’ve found that allowing yourself to add something to your cart and take time to think about it for a couple hours, so you can sort out if it’s an impulse splurge or something you really want, is the best practice. I would recommend taking a screenshot or favoriting the items, and then come back at the end of the day or week to see if it’s still something you really want.”
For more of Chloe Elise’s advice and information on her Wealth Accelerator program, visit www.deeperthanmoney.com.
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