Younger generations are more likely to make financial resolutions, and a whopping 81% of Gen Z say they made one for 2023, according to a Fidelity Investments survey. They are also more optimistic when it comes to their financial future and, in turn, say they are financially planning ahead.
But what steps are they taking? And how can they address the unique set of challenges inherent to their age group?
Create a Budget and Pay Off Debt
“Gen Z is focused on their financial foundation, which is the perfect place to start for those embarking on their financial journey,” said Kelly Lannan, senior vice president of emerging customers at Fidelity Investments.
The top resolutions for Gen Z included saving more money (40%), paying down debt (28%) and spending less money (26%), according to the Fidelity survey.
In terms of debt, many are faced with student loan payments, which can dampen reaching other financial goals.
“For those who have debt, creating some sort of budget is a first step. There are a ton of applications available, but many also love using a traditional notebook or spreadsheet,” said Nilay Gandhi, senior wealth advisor at Vanguard. “Writing things down can help young adults stay accountable, see how much they need to put toward any debt, and see where they may have some leftover to contribute to savings or investments. Even if it’s only a small portion of their income, contributing to these savings at a young age is paramount in preparing for the future.”
Fidelity’s Lannan also recommends creating a budget and paying down debt as a first step.
Of course, Lannan adds that people should be mindful of making payments on time to protect their credit scores and try to build cash buffers.
“Fidelity recommends saving a minimum of $1,000 — or one month’s rent, whichever is larger — to cover any unexpected costs that come up,” Lannan said, adding that after building this buffer it’s a good idea to start contributing to an emergency savings fund, which should ideally have three to six months’ worth of essential expenses.
‘Don’t Leave Money on the Table’
For Gen Zers who have employers that offer workplace retirement plans, Lannan said to “absolutely take it!”
“An employer’s match is essentially free money,” Lannan said, “so take advantage of it and don’t leave money on the table if you can avoid it.”
There are several factors that can work to Gen Z’s advantage. First, the advancements in technology and financial products can make planning easier.
“This is especially evident when it comes to retirement savings,” Vanguard’s Gandhi said. “Younger investors today are benefitting more from improved 401(k) plan design, such as automatic plan enrollment and automatic annual savings rate increases, making it easier for them to join, save and invest.”
Gen Z has much more democratized access to financial advice through various apps, which use modern tools such as text reminders, auto savings plan and savvy budget guidance to make it easier to put money toward debt repayment, savings and retirement. But Gen Z still should be cautious.
“Consider where you are getting investment advice and gut check ‘what’s on trend’ within social platforms vs. what’s logical for you,” said Stephany Kirkpatrick, CFP and CEO of Orum. “Money is inherently personal.”
Another tool Gen Zers use is professional help, as younger investors are more likely to have a professionally managed allocation compared to their older counterparts who were nearing retirement and constructed their own portfolios, said Gandhi, citing Vanguard data.
Gen Z Understands Alternative Investments
In terms of retirement, Gen Zers have time on their side and should start saving right away. And they do, according to Fidelity.
“Sometimes, young people don’t consider investing in retirement as a top priority,” Lannan said, “but it really should be, especially because the earlier you start, the more time your retirement money has to grow.”
In fact, Fidelity’s latest retirement analysis from Q3 2022 showed that Gen Z is focusing on retirement, with the number of IRA accounts for Gen Z increasing by 83% compared to Q3 2022. And, within 401(k)s, Gen Z individuals increased their saving levels in Q2 from 10% to 10.3%, Lannan said.
Another differentiator for Gen Z is their interest in crypto and how they plan to integrate it into their financial planning. For example, a Charles Schwab survey found that almost half of Gen Z want crypto to be a part of their 401(k) retirement plans.
“We are finding that Gen Zers are better informed about alternative investment products and more open to diversifying into alternatives such as real estate and digital assets than older generations who still typically gravitate toward the conventional 80/20 portfolio,” said Dara Albright, board member at Worthy Financial.
It’s a Year of Financial Uncertainty
Another important factor is that Gen Z is facing a unique set of compounding issues: They’re coming into a year of economic uncertainty with the threat of inflation and recession, following an unprecedented pandemic, while managing a larger student loan debt burden than any other generation, said Will Sealy, CEO and co-founder at Summer.
In turn, Sealy said, Gen Z needs to take advantage of this year as they approach their long-term financial prosperity and realize that they, like many Americans, need to set more conservative financial goals as they deal with the broader economic realities facing our country and the world.
“Broadly speaking,” Sealy said, “it is critical that if they don’t understand some aspects of their finances they use the resources available to them to learn how best to approach things like debt consolidation, impactful savings and investing plans and the like.
“Unlike millennials, who have been through downturns before, this year could be their first recession as adults, creating a new forcing function on how they approach their finances.”
Finally, in another optimistic note for this generation, Gen Z is the most likely to prioritize mental health — with 74% considering a mental health resolution, the Fidelity survey found. Financial stress often takes a toll on mental well-being.
In turn, the best first step is to outline a plan — starting with a realistic one that could be put to work immediately if something were to happen, said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of “Launching Financial Grownups.”
“Think of it like a fire drill,” Rebell said. “Use what you have and find a way to make it work. But then [outline] a realistic, better plan with specific steps to set it up as soon as possible so that they can be prepared to weather a storm, even if it never comes their way.
“Financial wellness needs to take priority so that they can enjoy their lives without constant anxiety about their financial futures.”
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