Being part of Gen Z today comes with various stereotypes and associations. As the generation following millennials, comparisons between their lifestyles, perspectives, and priorities are inevitable. Gen Z adults (18-25-year-olds) are a significant and rapidly growing segment of the financial customer base in India. According to the 2022 revision of the World Population Prospects, over 50% of India’s population is under 25, and over 65% is under 35. The 2022 Investopedia Financial Literacy Survey found that Gen Z adults are more financially savvy than the previous generation was at their age. However, while 54% of Gen Z hold some form of investment, only one in three (31%) feels confident explaining how the stock market works to a friend. This shows that Gen Z is open to sound financial advice and is leveraging it to manage their money responsibly and productively. Here are the keys to Gen Z’s financial planning style:
Budgeting is Key: One of the toughest habits for young adults to adopt is budgeting. It seems simple at first but can be challenging to stick to. The first step is to create a monthly tracker of your expenses and income to spend and save responsibly. Budgeting involves complexities such as investments, credit payments, loans, lifestyle changes, and insurance premiums, which are rarely taught anywhere.
Broad-scope frameworks like the 50-30-20 rule can significantly reduce the stress of budgeting every month. This rule states that 50% of your monthly income should go towards needs, 30% towards wants, and 20% towards savings. The key is to never compromise on your savings and needs, while wants can be adjusted. Nowadays, Gen Z can access instant credit for months with excess expenses without dipping into their savings. They also budget for the following month to repay a part of their credit by cutting back on their want expenses.
Capitalizing on Tech Savviness: Gen Z has access to a wide range of fintech apps for transactions. These apps are quick, intuitive, and often come with offers and deals, making aspirational purchases more affordable. Additionally, these apps can be used for responsible long-term finance.
Some short-term credit apps have built-in functionality for evaluating credit scores and providing zero-interest loans if the principal is repaid on time. By using these apps consistently, Gen Z adults can establish themselves as financially responsible and build a good credit score. A strong credit score benefits major purchases and bigger loans in the future.
New-Age Investing: Gen Z benefits from digital fintech tools for investing. No longer bound to brokers and banks, people can use various online platforms to engage with the stock market, mutual funds, or government schemes like NPS directly. These platforms also offer tutorials and introductory courses to help Gen Z learn the basics of investing.
These platforms help diversify your portfolio, which is crucial for good investing. Diversifying across multiple types of investments improves security and long and short-term gains. Being comfortable with specialized services that handle mutual funds, BNPL, stocks, and traditional banking significantly improves your financial prospects.
Anticipating Major Expenses: Gen Zers face many financially demanding milestones, such as higher education, buying their first bike or car, and taking road trips with friends. These expenses can be easier to manage if anticipated and planned for early on. Knowing when to use credit for aspirational purchases is also advantageous. For example, a smart Gen Z adult might wait for sales and festive season offers on credit apps when purchasing electronics. Borrowing apps can significantly reduce costs with minimal effort.
Dealing with FOMO: Gen Z consumers are defined by convenience and self-expression. They are drawn to products that are easily accessible and seem original and personalized. Given their young age and exposure to the best products, both domestic and international, it’s understandable that Gen Z aspires for the best.
However, being financially responsible means keeping track of your debts while taking on new ones. It’s important to delay gratification and plan your expenses accordingly. With credit being so easily available, Gen Zers often feel the ‘Fear of Missing Out.’ However, it’s crucial to avoid overspending and taking on new credit until existing debts are paid off. Failing to repay existing loans can harm your credit score, affecting future credit purchases.
Planning Long-Term: Gen Z adults are in a unique position regarding financial goals. They have seen their parents and grandparents secure good jobs, settle down young, and buy houses and cars with relative ease. However, many Gen Zers find these purchases challenging due to high costs and relatively low earnings.
A responsible Gen Z adult can focus on two main areas for long-term financial stability. First: start today. No one likes thinking about retirement in their early twenties, but by figuring out the lifestyle and passive income they hope to have, they can set tangible goals to work towards. Second: have an emergency fund. The Covid-19 pandemic showed how quickly lives can change. During uncertain times, when many Gen Z workers might temporarily lose their jobs, having a backup fund is crucial to avoid dipping into money reserved for other investments.
While it’s unpleasant to think about worst-case scenarios early in life, it’s vital for Gen Z adults to establish a fallback plan to protect their financial goals and aspirations from unforeseen changes.
