I’m in my 40s, and I regret doing certain things with my finances. I regret not investing and building an emergency fund when I had my first few jobs. I also regret taking out a hefty student loan for college. I wish I were more proactive about getting scholarships or not attending college at all and learning a trade instead. Finally, I wish I knew more about credit card debt and how to avoid it. This inspired me to help Gen Zers of color make smarter choices with their finances and do well with their lives. Here are 15 money mistakes Gen Z should avoid now.
1. Overspending and Impulse Spending
This is one of the most common money mistakes Gen Z should avoid. According to a survey from Lending Tree, more than 6 in 10 Gen Zers said they feel pressured to spend money to keep up with others. The survey also stated that it led to an increase in debt, stress, and broken relationships. Social media consumption and popular influencers play a part in Gen Zers’ spending habits. On the bright side, a trend called de-influencing may help Gen Zers curb overspending. De-influencing is when some influencers raise awareness by encouraging less mindless spending.
Create a flexible budget and watch out for triggers that encourage you to overspend. Unsubscribe from retailers’ mailing lists and look for free or inexpensive ways to have fun. If necessary, delete your current social accounts and reopen them with only a select few that you follow. Automate a portion of your check toward savings. This leaves you with less money to spend. Learn to distinguish between needs and wants when shopping.
2. Relying on Credit Cards
Credit cards come with cool perks and they boost your credit score if you’re a responsible user. But it becomes a problem when you rely on them to buy things you want or need. Maxing out your credit cards puts you deep in debt and it becomes hard to achieve financial stability.
3. Ignoring Retirement Planning
Most Gen Zers are in their 20s or almost 30, and this means that they should get an early start on retirement planning. If your employer offers a 401k plan, enroll in it and contribute up to the amount your employer matches. If your employer doesn’t offer a 401k plan, open a Roth or traditional IRA. This is a retirement where you choose and manage your own investments. The Roth IRA is great to have because your contributions, earnings on those contributions, and withdrawals are all tax-free.
4. Not Saving Enough Money
Many Gen Zers are not saving enough money for emergencies or long-term financial goals. Financial emergencies happen, and without savings, you’ll need to turn to forms of debt such as credit cards, personal loans, or payday loans to cover these unexpected expenses. Develop a regular savings habit and use an online high-yield savings account because these banks offer higher interest rates than traditional savings accounts.
5. Forgetting About Scholarships
Gen Zers can avoid or minimize the need for student loans by researching and apply for scholarships and grants. Scholarships and grants are free money you can use to pay for tuition, room and board, and those expensive college textbooks. Apply for numerous scholarships to increase your chances of attending college debt-free. This is one of the most detrimental money mistakes Gen Z should avoid.
6. Rushing Into Homeownership
Some Gen Zers think they need to rush into homeownership but this is a financial mistake. There is nothing wrong with renting while you save enough money for a down payment on your new home. If you’re still living with your parents, it’s not the worst thing. Renting can benefit you in several ways. More of your income can go toward investments and you avoid the headaches that come with homeownership.
7. Lack of Financial Literacy
For other Gen Zers, it’s a lack of financial literacy that keeps them from doing well financially. Read blog posts, personal finance books, and newspaper articles about how to succeed financially. Talk to relatives who make wise financial choices and ask them for advice on certain finance topics. Watch online videos and listen to personal finance podcasts.
8. Focusing Heavily on Individual Stocks
It’s good to know that Gen Zers invest, but they’re prone to certain investing mistakes. One such a mistake is buying too many individual stocks. A study from the CFA Institute found that 41% of Gen Zers have most of their money in individual stocks. This is risky because if certain companies take a huge hit, the value of your stocks could decrease drastically. It’s better to invest in index funds. These are baskets of stocks representing diverse sectors and companies.
9. Getting Too Much Financial Information from Social Media
Social media can be helpful in learning about personal finance, but there are also many social media influencers who teach the wrong things about money. They may also present a false view of success and financial stability to viewers. Practice discernment and verify all claims you hear from your favorite influencers. Don’t compare your financial situation to the people you see online because it’s unrealistic.
10. Irresponsible Credit Card Usage
This is true of all generations, but I’m including it here to warn Gen Zers against this so they’ll avoid the consequences. When you max out your credit cards and take long to repay the balances, your debt load increases and your credit score suffers. It prevents you from qualifying for mortgages, better credit cards, and business loans. Only charge what you can afford to repay at the end of each month.
11. Believing the Wrong Things About Money
Some Gen Zers also have misconceptions about money that could hinder their financial success. One misconception is the idea that being rich means you live in big fancy houses and drive the fanciest cars. But wealth is a lot more than the things you own. Wealth is having the options to spend your time as you wish and to make room for the things that matter to you. Another misconception is that you need to be wealthy in order to invest. Actually, you can start investing with a small amount and as you contribute more to your investments, your money will grow.
12. Not Understanding Taxes
I didn’t understand how taxes work for a long time, and I’m slowly understanding this topic better through my own research. Gen Zers will have to file taxes as soon as they get their first job. It’s crucial that they learn how taxes work and how to file them properly. They should also learn about tax credits and tax deductions since it reduces their tax liability.
13. Not Upskilling for Career Advancement
You shouldn’t remain stagnant in your career. You’re still young and this is the time to explore different career options and look for ways to advance professionally. If necessary, upskill by taking certifications for certain high-income skills that will earn you a better salary and place you in better positions. The workforce is always changing, and you’ll need the right skills for the job you want.
Gen Z can have a bright financial future. Older generations should rally behind them and guide them in the right direction so they can have the right financial foundation. Instead of criticizing them, let’s build them up.
