I’m a Financial Advisor: 4 Reasons Gen Z Isn’t Saving Enough and How To Catch Up
Navigating personal finances is no walk in the park no matter what year you were born. But for Gen Z adults — ages 18 to 27 — the journey has a few more obstacles.
Find Out: Here’s How Much the Definition of Rich Has Changed in Every State
Try This: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy
This generation has a lot coming at them with TikTok influencers urging them to spend on the latest trends, and algorithms filling their feeds with enticing spending opportunities. Coupled with a glaring lack of financial education in schools, it’s no wonder young Americans find it daunting to determine how much they should be stashing away. Plus, with inflation squeezing budgets tighter every day, the odds are stacked against Gen Z as they try to save.
Here’s a closer look at why this generation is struggling to build their savings along with some strategies Gen Z can take advantage of to turn things around to secure their financial future.
Rising Costs
Saving money while living paycheck to paycheck is an almost impossible feat for many Gen Zers. With wages stagnating and the cost of housing, education and everyday essentials rising, this young generation has little room for savings.
“Housing is the most unaffordable we’ve seen in my lifetime and we still feel the weight of increased prices that came from higher inflationary times in the past couple of years,” said Gloria Garcia Cisneros, Gen Zer and CFP at LourdMurray. “This is exacerbated in larger cities, where rent can make up a large part (40-50%) of young individuals’ monthly expenses.”
Mass Consumerism
As digitally savvy as Gen Z might be, their online presence comes with a price tag. Simply scrolling on their social media feed, young Americans are bombarded with ads tempting them to open their wallets.
“We are pressured into buying something we looked up once due to algorithms and now, it’s even easier to complete that purchase (touch to pay, CC info saved, retailer apps),” said Charlotte Guinot, financial advisor at McLoughlin Financial, LLC. “It is simply easier to spend money today than ever before. The added demand and pressure Gen Z has to keep up with their peers on social media does not help their spending habits.”
Be Aware: 7 Popular Clothing Brands the Middle Class Can’t Afford Anymore
YOLO Attitude
While Gen Z might be living in an era of mass consumerism, they also display a different attitude than previous generations when it comes to their spending.
“There is a sort of defeatist doom spending issue, which is glorified YOLO for your money,” Garcia Cisneros said. “The thought is that if they don’t have access to some of the ways previous generations built wealth (like real estate) or the same goals (marrying, having kids and traditionally buying a home), they’re going to redefine what life looks like for them and enjoy their hard-earned money.”
Lack of Financial Literacy
Starting on a journey of saving and investing can feel like a daunting task for young adults, especially when they have no prior financial knowledge. This lack of financial literacy can paralyze a Gen Zer from feeling confident in making savings or investing decisions, becoming a major culprit when it comes to not saving enough.
“We learn from experiences and if we grow up around people who spend all their lives, we may do the same,” Guinot said. “Despite the lack of education in schools around personal finance, the good news is that there are an increasing number of social media accounts and podcasts that share tips on how to save and prioritize your finances.”
How Gen Z Can Start Saving Now
Despite grappling with inflation and a general lack of financial literacy, Gen Z has to power to start building good habits now in order to ensure a healthy financial future. Here are four ways to get going.
Maintain a Healthy Savings Rate
It’s tough to get ahead financially if you haven’t started saving yet. Saving at least 10% of your income now will allow you to take advantage of compounding interest and start a sizeable nest egg for your future. If 10% seems daunting, start with 1% and work your way up to 10%. Setting aside 10% of your income will not only allow you to practice discipled financial planning, but will lay the groundwork for long-term financial stability.
Automate Savings
Saving money can feel like an impossible task, especially when it it involves manually transferring a part of your paycheck to savings. However, taking advantage of automatic savings makes the process effortless.
“Determine an amount you can allocate to an investment account after you pay all non-discretionary expenses each month,” Guinot said. “Think about how much you spend on coffee weekly or your weekend bar tab, can this be put to better use? Once it’s taken out of your bank account, you won’t even miss it. Out of sight, out of mind.”
Embrace Budgeting Apps
Budgeting doesn’t have to be a painstaking process. Gen Z can leverage their innate digital savvy to by allowing their smartphones to help them manage their finances and track their saving and spending.
Platforms like YNAP and Goodbudget offer automated bank-to-app tracking, alleviating the need for manual entry of every expense. They can help track income and spending patterns, provide suggestions for cutting back on expenses, and help you set realistic savings goals.
Seek Guidance
Gen Zers recognize the value of using all the tools in the toolbox, and are tapping into all available resources in order to optimize their financial well being. They understand the importance of strategic financial planning and know that it’s OK to ask for help.
A financial advisor can help empower you to save — and spend — with peace of mind. They can provide personalized advice based on your financial situation and help you develop a long-term savings plan.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: 4 Reasons Gen Z Isn’t Saving Enough and How To Catch Up
