In a world plagued with crippling inflation, disastrous stock market crashes, and rampant unemployment, it seems only natural for millions of Gen Z to brace for an imminent financial disaster.
A 2023 EY study revealed that “money continues to be a growing concern for Gen Z as financial uncertainty, worry about an uncertain future, and distrust of large businesses propel generational anxiety to an all-time high.” But with nearly no light in sight in this bleak financial year, experts say there’s no better time to instill the virtue of budgeting. Marilyn Lydia Pinto, Founder of KFI Global, reminds Gen Z investors that “managing one’s finances smartly and responsibly isn’t a sprint; it’s more of a marathon.
Tackling any gargantuan task demands direction and dedication. Responsible and effective financial planning is no different. Pinto extrapolates on the analogy of a marathon to stress the importance of adjusting expectations early on in order to cultivate financially favorable habits in the future. “Impulse control and delayed gratification become keywords in this quest,” said Pinto.
Evade the debt trap
In 2024, debt has acquired a renewed appeal. This historically crippling phenomenon is now being leveraged by influencers and entrepreneurs to generate returns from an investment or project. But for the average Gen Z with a financial blank slate, debt is still an avoidable risk. According to Pinto, “the cost of credit is increasing, whether it be through credit cards or loans.” She adds, “In such trying times, young people should be prudent about the debt they take on.”
There comes a time in everyone’s career when taking up reasonable debt is advisable. A 2023 Visa Middle East report highlighted 50% of Gen Z opting for credit cards, alongside debit cards and digital wallets. But when 1 in 7 Gen Z credit card users are “maxed out,” the probability of venturing down the “unpaid balances and late payments spiral” is significantly higher. Pinto advises Gen Z to “manage lifestyle expectations and not buy anything they can’t pay off in full at the end of the month, and to activate trip wires to ensure all payments are made on time.”
Budgets for rookies
Asawar Ali, a personal finance consultant based in the US, suggests breaking down large figures, such as a monthly paycheck, into digestible ratios. The 50/30/20 rule is a standard framework for any Gen Z employees expecting their first paycheck. The 50/30/20 rule splits a paycheck into needs (50%), wants (30%), and savings (20%). According to Ali, “72% of the budgeting members of Gen Z we’ve surveyed were on board with the 50/30/20 rule.”
The 50/30/20 rule provides a financial roadmap for Gen Z that can be leveraged using technology. Popular apps like Mint or YNAB (You Need a Budget) provide a gamified outlook on budgeting. Ali confirms that “Gen Z is 2.5 times more likely than any other generations to use them effectively” to boost their financial literacy. Automating savings is another clever tactic used by 68% of Ali’s Gen Z clients to cultivate the habit of saving regularly.
Take social media (and what the finance bros say) with a grain of salt
Algorithms on social media platforms are designed to facilitate doomscrolling and doomshopping by extension. “With hyper-targeted advertising, algorithms seem to know exactly what Gen Z wants even before they do,” says Pinto. But this information is not the first of its kind. All Gen Z acknowledge the lure of clickbait shoppable ads and still fall prey to them. Unfortunately, combating this vicious cycle of’retail therapy’ requires resilience. Gen Z’s must become accountable to their future selves. Ali suggests a subtle but effective shift in mindset: “Prioritize experiences, not possessions.” The 30% wants category of a monthly check need not be restricted to ten phone cases advertised at the price of five. Allocating money to “memorable experiences rather than mere stuff” inculcates the necessary resilience for financial freedom at an early age. Industry patterns indicate that this mindset shift closely aligns with “values expressed by 76% of Gen Zers,” says Ali.
Be wary of ‘one tap’ culture
The contactless payment revolution has made payments simpler and detached users from their available bank balance. Many Gen Z users admit to forgetting what they spend and how much they owe as a result of quick swipes and taps everywhere they go. Liran Eliner, CEO of Cache, says “new payment methods generally add an additional bucket of spending in people’s minds.” Eliner calls this disconnect “mental accounting, which is essentially the concept that people create distinctions between their financial resources by categorizing things into different mental accounts.’ Frictionless payment methods basically added a new mental account that didn’t exist before, causing people to feel like they have a new spending bucket that they can fill up, leading to overspending.”
