Gen Z's Approach to Savings: 'Why Bother?' — Overlooked Risk Assessment, According to One Expert
Feeling stuck financially, Gen Z? You're not alone.
A whopping 49% of Gen Z adults, with the oldestmembers approaching their late 20s, find it pointless to plan for the future, according to a recent survey by Credit Karma. This "YOLO mindset" can potentially lead young adults to build up high-interest debt, delaying critical life milestones like moving out or saving for retirement.
A free-spirited attitude towards summer spending is becoming prevalent among those feeling financially down. Courtney Alev, a consumer financial advocate at Credit Karma, explains this disheartened mindset, "What's the point when it comes to saving for the future?"
If left unchecked, this carefree approach could create serious financial issues for these young adults. Notably, the late teens and early 20s are an ideal period for establishing robust financial practices. By starting to invest now, even with just a little amount, you can reap significant rewards through decades of compound interest.
Experts warn that long-term implications come into play if these young people neglect their financial future, choosing instead to spend haphazardly. "There are a lot of financial implications in the long term if these young people aren't planning for their financial future and [are] spending willy-nilly however they want," Alev says.
Why does Gen Z feel disillusioned?
Given the current circumstances, it's easy to comprehend the disillusionment. The labor market has posed challenges for job seekers and those looking to switch careers, according to experts. Unemployment rates might be low at 4.2% nationally, but it reaches 5.8% for young adults aged 22-27, with the figure being even higher for those without a bachelor's degree.
Gen Z is also burdened with worries about debt. "They feel they don't have any money and many of them are in debt," said Winnie Sun, co-founder of Sun Group Wealth Partners. With 50% of bachelor's degree recipients of the 2022-23 class graduating with an average debt of $29,300, according to College Board, students are perturbed over the repayment of their loans.
Moreover, credit card delinquency rates are on the rise for Gen Z, faster than for any other generation, according to a report by the New York Fed. Additionally, the easy availability of Buy Now, Pay Later lending options, such as Klarna and Affirm, is pushing Gen Z users to overspend, with 77% reporting that these services have encouraged them to spend more than they can afford.
For many, the possibility of widespread student loan forgiveness, proposed by the Biden administration, has become stymied in court, further adding to their financial woes.
Navigating financial despair
Gen Z should aim to change their financial perspective, says Sun. "See it as an opportunity." She adds, "If you're young and your expenses are low, this is the time to invest as much as you can right now."
The power of compound interest, paired with the time Gen Z has on their side, means that every small investment can result in substantial benefits in the long run. Automatic payroll deductions in retirement accounts like a Roth IRA or 401(k) provide an easy starting point for investing. The potential match offered by some employers is essentially free money, a rare opportunity in life.
In conclusion, Gen Z's feelings of financial disillusionment and sense of uncertainty are understandable in the current climate, but it's crucial to adopt a proactive approach to financial planning.
- Gen Z's disillusionment stemmed from the challenging job market and high unemployment rates among young adults.
- Debt burden is another factor contributing to Gen Z's financial disillusionment, with 50% of bachelor's degree recipients graduating with an average debt of $29,300.
- The rise in credit card delinquency rates among Gen Z is concerning, with Gen Z experiencing higher rates than any other generation.
- The easy availability of Buy Now, Pay Later lending options, such as Klarna and Affirm, is pushing Gen Z users to overspend.
- The potential for widespread student loan forgiveness, initially proposed by the Biden administration, has been stymied in court, exacerbating Gen Z's financial troubles.
- A free-spirited attitude towards summer spending and frequent delay of critical life milestones like saving for retirement could lead to serious financial issues.
- By starting to invest, even with just a little amount, young adults can reap significant rewards through decades of compound interest.
- Automatic payroll deductions in retirement accounts like a Roth IRA or 401(k) provide an easy starting point for investing, with some employers offering a match, essentially free money.
- To navigate financial despair, it's essential for Gen Z to adopt a proactive approach to financial planning, viewing it as an opportunity to invest and build wealth for their future.
