There is a silver lining in America’s longest recession that in many ways mirrored the Great Depression. Worth its weight in gold is the impact the great recession has had on the financial savvy lessons learned by the youth looking for work.
However, there are real concerns that youth share who are close to graduating from high school. Known as Gen Z and one year closer to financial independence, this age group is growing more concerned about the job market, among other economic and financial issues, according to the 2nd Annual Generation Z Survey. This year, 34 percent of respondents say their top economic concern is jobs and unemployment.
For example:
- They are more worried about large student loan debts (46% vs. 39% in 2012)
- They are increasingly concerned that they won’t be able to rely on Social Security when they retire (39% vs. 31% in 2012)
- They are more likely to believe saving is important at this stage in their lives (83% vs. 76% in 2012)
- The majority (59%) of Gen Z with credit cards say they pay their balance off in full each month when they receive their statement, which is an increase from the 23% doing so in 2012
While coming of age during a recession may encourage conservatism and a good understanding of the importance of saving, some in Gen Z are missing critical opportunities to start good financial habits early:
Fact: Four out of 10 (41%) Gen Z respondents do not pay their credit card balance off in full every month, including a third (31%) who only pay their balance off in full one statement in every two or fewer. The average balance held on Gen Z’s last credit card statement before payment was $485.
Fact: Forty-four percent of Gen Z respondents say the best way to save for retirement is in a savings account, while only 11 percent think investing in the stock market is best.
Fact: While most Gen Z respondents say they have checking and savings accounts, nearly 1 in 5 do not have any savings/spending vehicles of their own.
Fact: More than half of those in Gen Z follow a budget. A quarter (27%) follow one carefully and another quarter (26%) follow one, but not very closely.
Fact: One-third have installed banking apps on their smartphones, and a smaller group of 8 percent say they have installed budgeting/savings apps. That’s more than those with Snapchat (26%) but significantly less than those with YouTube (83%), Facebook (78%) or Twitter (44%) apps.
“When it comes to establishing good financial habits, starting at a young age is key,” says Carrie Braxdale, managing director of investor services for TD Ameritrade.* “We encourage parents to talk to kids about money, and the survey suggests Gen Z will listen – six out of 10 say their parents are the most influential source of financial education.”
How does this compare with Gen Y?
While generations of consumers learned important lessons following the 2008 financial crunch and began seizing control of their finances, the younger generations, particularly Gen Y (born 1981-1988), learned more and have taken the most positive action post-crisis, according to findings that Fidelity Investments® released from its “Five Years Later” study*.
The study, which examines the attitudes and behaviors of investors since the financial crisis began five years ago—a crisis that has been widely recognized as the worst since the Great Depression—reveals 81 percent of Gen Y now consider themselves more knowledgeable about their finances, compared to 66 percent of older generations. In addition, when it comes to confidence levels, Gen Y is faring better: 55 percent of Gen Y versus 47 percent of older generations feel more confident as investors. Additionally, 64 percent of Gen Y versus 54 percent of their elders now save more systematically.
This makes perfect sense given the economic impact on this population of growing entrepreneurs.
“While the crisis served as a wake-up call for investors of all ages, this study found Gen Y may have experienced the most positive change,” said John Sweeney, executive vice president of Retirement and Investment Strategies at Fidelity Investments. “Gen Y remains surprisingly confident despite suffering investment losses, and especially given that many also saw the impact the crisis had on their parents, who were approaching or in retirement. Rather than over-reacting, Gen Y has taken a more deliberate approach to their finances, recognizing the need to assume control of their spending and investing habits, and showing a willingness to do things differently. These are important factors when it comes to weathering any financial challenge.”
“Generation Optimistic”
Overall, when comparing Gen Y against older generations, it clearly stands out as the most upbeat age group. Aside from feeling more confident as investors, 52 percent of Gen Y versus 41 percent of older respondents describe themselves as more confident in general, now that several years has passed since the financial crisis began.
That attitude includes a certain level of optimism about the broader economy and the stock market. In fact, 50 percent of Gen Y versus 30 percent of Gen X (born 1965-1980) say the economy is better now than it was five years ago. And 76 percent of Gen Y versus 56 percent of Boomers believes their investments have fared better since then.
How the Financial Crisis Influenced Gen Y Money Moves
The survey findings suggest Gen Y’s more optimistic outlook contributes to a different approach than older generations when it comes to making financial and investing decisions:
- A more socialized financial experience – At the start of the financial crisis, Gen Y turned to family and friends for financial advice more than other generations (37 percent versus 23 percent of Gen X and 25 percent of Boomers). They were also more likely to conduct online research (34 percent) and use online tools and calculators (23 percent).
- Emergency funding – Although 26 percent of Gen Y respondents said personal debt increased these past five years, 71 percent of respondents started to maintain an emergency fund and 48 percent increased their emergency savings. In comparison, while 21 percent of Boomers saw personal debt increase, slightly over half (52 percent) started to maintain an emergency fund and only 29 percent increased their emergency savings.
- A focus on saving – Thirty-four percent of Gen Y respondents increased household liquid assets, and 39 percent of Gen Y increased contributions to a tax advantaged retirement savings account. Employer-sponsored retirement savings plans (32 percent), IRAs (21 percent), and personal real estate (29 percent) also have increased in importance for Gen Y.
“Time is the biggest driver of success for young investors, followed closely by savings rate, asset allocation, and finally, fund selection,” added Sweeney. “Time is a lever that uniquely belongs to young investors, and for Gen Y, time is on their side. This research indicates they are saving early and often, which is a critical element for a successful retirement roadmap. To maximize their potential, Gen Y is well positioned to apply their optimism and confidence when it comes to developing strong financial strategies. We believe all investors, including Gen Y, need a solid mix of investments to help provide income and growth potential over the long run.”
Copyright TIGERS Success Series by Dianne Crampton
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