This article was co-authored by Betsy Kocour.
Millennials are leaving their mark in the financial and business worlds, but what about Generation Z?
These individuals born from 1995 to 2014 share many values with millennials, like prizing experiences over material items. However, they have a unique set of financial objectives and influences.
One reason is because Gen Z experienced the second-hand effects from the 2008 financial crisis. Growing up with their parents stressing over losing their retirement savings or their home caused these young people to have a more skeptical view of what the term “money” represents. They also actively avoid debt more than any other generation has at their life stage.
Let’s look at four tips that will provide this generation with peace of mind as they move towards stabilizing their financial lives.
1. Planning for retirement
For Generation Z, the first and easiest way to combat the stress surrounding retirement is to prioritize saving — specifically planning to save early in their career. Due to factors such as inflation and compounding interest (as this blog demonstrates), saving earlier and often puts Gen Z ahead in building up their retirement nest egg.
Whether saving in a 401(k) or an IRA, it’s essential to understand the differences between Roth and Traditional contributions. As Gen Z enters their early income-earning years, it’s often best they make Roth contributions to their savings vehicle. Roth contributions are taxed in the year they are contributed, allowing Gen Z to withdraw money tax-free in retirement. Traditional contributions allow tax deductions in the year the contribution is made and are then taxed upon withdrawal in retirement.
Another key component of retirement savings, specifically when contributing to a 401(k), is employer matches. To be sure Gen Z is using this vehicle to its full potential, they will want to contribute enough to their 401(k) to receive the match their company provides.
Finally, an effortless savings technique to prioritize retirement arises upon receiving a raise. When a person is already used to living without this additional income, contributing an increased amount will not crunch their cash flow and would push them to reach the maximum yearly contribution of $19,000.
2. Creating an emergency fund
Another savings technique that should be used to ensure the stability of day-to-day activities is to build up an emergency fund. Typically, three to six months of living expenses is a safe buffer. Having this cushion will leave Gen Z members feeling confident that they will not be overwhelmed, should something go wrong.
On the other hand, Gen Z early life high earners can avoid these five spending mistakes.
3. Tracking expenses
As mentioned earlier, the term “money” carries a certain level of stress with Generation Z. However, they have a leg up on any other generation when it comes to using technology in reducing this stress.
These individuals grew up in an era where they were introduced to technology at a very young age, making them more adaptable and competent in navigating new software. They will be more equipped with the skills it requires to use online budgeting apps, such as Mint and Quicken.
Using these apps to their full potential will push Generation Z to stay on top of their expenses and ensure they have control over their financial lives. New technology will also allow them to keep on top of their cash flow to avoid large amounts of debt, which can cloud their financial vision.
4. Leveraging technology in decision-making
Technology also provides Generation Z with a leg up in their ability to use the internet as a resource when purchasing items. Gen Z is very diligent when it comes to spending. Due to the availability of Google and quick internet searches, they can compare pricing options and review testimonials in real-time before purchasing a product or committing to an event.
The role that YouTube plays in this process is also a driving factor — 85% of Generation Z watches one YouTube video a week. YouTube is a hub for information and provides visual testimonials that have a powerful influence on how they view new products and trends. The power this tool has to influence their decisions and behaviors will have a snowballing effect on their spending outcomes.
Gen Z and financial advice
In the past, technology may have been viewed as a tool that distracts from learning, but looking into the future, it will be a driving factor that pushes this generation to be more efficient and resourceful in making any decisions that will influence their financial future.
The financial stress that Gen Z carries will actually be a motivator for them to seek financial advice and rid themselves of the worry that surrounds these matters.
Overall, this generation of individuals is more focused on getting something out of every aspect of their life. That’s why, when it comes to their search for a trusted advisor, the most outstanding factor will be an offer of a unique experience and a structured plan. The way to capture this generation is by offering a personalized experience that leaves them fulfilled and more confident about their choices than before.
Are you curious about Wipfli Financial’s approach to financial planning and investment advisory?
What about the next generations? Read more articles here.