Half of Generation Z — those born between 1997 and 2012 — are now coming into adulthood or are already adults. With advertisers and marketers already targeting this tech-savvy generation, Gen Z needs to establish good money habits so they can build wealth over time.
The encouraging news: Gen Z already shows a knack for money management. More than a quarter are already investing. Thanks to podcasts, videos, and more, with ample resources at their fingertips, this generation is already well on its way to financial security.
But with so many pieces of advice and resources, knowing where to start when building good financial practices can be overwhelming.
Here are 20 pieces of money advice to get Gen Zers started securing their financial freedom.
#1: Monitor financial health
Building financial security is a lot like going on a cross-country road trip. While a person can enter an address in a map app and hit the road, they will be more successful if they take breaks to see how their car is functioning and check road conditions to see if a better, faster route may have opened.
One of the best ways to track financial growth over time is to hold a monthly money date. Schedule half an hour to sit down and look at all bank accounts, lines of credit, investments, bills, and so on.
To save time and frustration, consider signing up for a free service or application that pulls information from all accounts together in one place. These apps will break down where the expenses are coming from, how much a person spends monthly, etc.
#2: Set a budget
Another fundamental part of developing financial literacy is to have a monthly budget. While there are different approaches for setting a budget, one good rule of thumb is the 50/30/20 plan. With this approach, a person should spend 50% of their income after taxes on needs, 30% on wants, and 20% on savings.
That means half of a person’s income should go toward their needs. It encompasses what a person needs to survive, such as paying rent, utilities, insurance, and food. Wants, however, add to life. Examples of wants include dining out, subscribing to streaming services, and vacations. The remaining should build savings and pay off high-interest debt like credit cards.
#3: Take note of the best majors and careers
While nearly one in three Gen Z college students plans to earn degrees based on their passions, following their hearts may not be the best to secure a salary that meets their expectations.
As of 2022, the average Gen Zer can earn $55,260 in their first job after college. A recent survey found that many Gen Z’s overestimate their potential salary by as much as $50,000 after college.
The majors and career tracts with the highest starting salaries fall in computer science, nursing, finance, and accounting. By balancing doing what they love and following a more lucrative career path, college graduates can start their professional careers earning a higher salary than pursuing their interests alone.
#4: Watch the job market
Once upon a time, new professionals were encouraged to find a job and stay with the company for a long time — or even until retirement — to secure their financial freedom. But with fewer companies offering attractive pension plans for long-term loyalty, Generation Z can skip that advice and keep their eyes on the job market.
Keeping an eye on the job market is a way to see what opportunities are available. It is a way to track current and changing salaries for comparable jobs. New job postings can also provide insight for certifications and continuing education opportunities to gain new skills that can be profitable in the future.
It never hurts to submit applications and take job interviews, even if you are not actively looking for new employment. The candidate can provide a counter-offer based on salary research for comparable positions at similar companies when presented with an offer. Negotiating a pay raise during the job offer rather than after the company hires you is easiest.
#5: Ask for a raise
While many companies and organizations offer annual cost-of-living raises at an average of 2% to 3%, these salary increases do not always follow industry salary norms or even the rate of inflation. Asking for a pay increase outside of annual cost-of-living raises can be a way to narrow the gap.
When asking for a raise, they should be ready to share a list of accomplishments — including measurable results — a list of all job responsibilities and research showing comparable salaries for the job. An employee can also use a new job offer to leverage a raise. Most companies would like to avoid the cost and time it takes to hire and train a new employee while retaining a knowledgeable veteran.
#6: Reduce spending
When a person has a fixed income but wants to save or invest more money, it’s time to look at ways to reduce their monthly expenses.
Gen Z’s can cut costs by looking at and reducing impulsive and emotional expenses. These expenses come from shopping for retail therapy or dining out because someone has had a bad day.
Instead, they can set a goal of grabbing a fancy coffee once or twice a week or designating one night a week as a takeout night. They can also create a wish list of clothing and home items to purchase in the future instead of impulse buying. This approach strikes a balance allowing a person to still partake in what they enjoy while reducing spending every week.
#7: Explore creative ways to save
Saving and earning money doesn’t have to be about getting a second job or cutting expenses. With websites such as Rakuten, a person can earn money while spending.
Rakuten is simple. A person can add a web extension, and every time they visit a participating website and make a purchase, they will earn a rebate based on how much they spent. The amount varies, with the lowest rebates at 1% and some as high as 40% to 50%. In addition, Rakuten does price-matching, letting a shopper know if the same product is less expensive on another website.
#8: Housing costs
An old rule of thumb is that people should spend no more than 30% of their gross income on rent or mortgage payments. While this practice may be difficult to enforce with high home purchasing and rental prices, sticking close to that amount gives a person more flexibility in paying other bills.
Gen Z can look for apartment complexes or landlords offering move-in specials to keep housing costs low. While these rates won’t last forever, paying a lower amount up front can help Gen Z save money during the first months of their residency. Remember to find out what utilities are included with any rental properties and how much a tenant is expected to pay on their own each month.
Homeowners should remember that some properties come with Homeowners Association fees (HOAs). HOA fees are separate from the mortgage payment. Homeowners are also responsible for the costs of maintenance and repairs, and they can typically expect to spend more every month on utilities than in a rental unit.
#9: Good debt vs. bad debt
For a long time, all debt had a reputation for being bad. But some debt — known as good debt — can help a person’s financial health and meet long-term financial goals.
Good debt includes the money a person owes that can increase their wealth over time, such as student loans, business loans, and mortgages. By taking on a student or business loan, a person makes an investment in themselves that will hopefully increase their earning potential over time. Likewise, homes typically appreciate over time, so buying a home at a lower price today likely means cashing in on a big payday down the road.
Bad debt is debt for other purchases, usually with credit cards or payday advances. These forms of debt repayment tend to have substantially larger interest rates than mortgages or student and business loans. Unless a person can pay off their credit card every month before being charged interest, they can pay a lot more for a good or service than its original cost.
#10: Credit cards vs. debit cards
Credit and debit cards may look alike and function the same when it’s time to make a payment, but that’s where their similarities begin.
While a debit card links directly to a checking or savings account, a credit card allows a user to borrow against a line of credit while providing other perks like airline miles and discounts on certain purchases. The cardholder can avoid paying steep interest rates if the amount borrowed is paid in full before each month’s set date. Using a debit card to make all payments avoids debt accrual, but using a credit card has its merits.
First, using and paying off a credit card (in full) every month allows the cardholder to build up their credit score, which can benefit them when trying to secure a mortgage or business loan.
Second, credit cards come with more fraud protections. If someone steals a card number, the credit card company will assume liability to recover the stolen funds and seek justice. If a debit card number gets stolen, the cardholder is less likely to be able to recover the stolen funds.
#11: Student loans
With the rising cost of attending college and paying for living expenses, many Gen Zers may need to take out student loans to pay for part or all of their post-secondary education. When applying for loans, they should look for programs that offer lower interest rates and deferral options that give borrowers more time to pay off loans without accruing interest.
Gen Z can strengthen its financial literacy by learning more about consolidating and refinancing student loans when it comes time for repayment. Borrowers with multiple student loans can consolidate them into a single loan, making repayment easier and decreasing the chance of missing out on a payment. Refinancing allows borrowers to transfer all or part of their current loan into a new loan with a lower interest rate, meaning they will pay more toward the principal than interest over time.
#12: Paying down debt
Gen Zers can certainly pay down debt. The first step is to list all outstanding debts. Include the name of the account, the type of debt, interest rate, payment terms, and minimum monthly payments. Next, determine how much to allocate toward debt reduction.
With this information, the next step is to choose an approach for payment. The debt snowball method involves paying off the debt with the smallest balance first while making the minimum payment on all other accounts. Once the smallest debt gets paid, you can move on to the next most significant balance, and so on.
With the avalanche approach, a person first pays off the account with the highest interest rate. Gen Zers can also use a debt consolidation approach, in which they combine all current debts into one account, making sure not to add on any more debt while paying off the single account.
Whatever approach a borrower goes with, when a borrower pays the “minimum payment” on high-interest loans, most of the payment goes towards interest. As a result, it leaves the principal amount relatively unchanged while accruing more interest.
#13: Making major purchases
Ideally, when making major purchases — such as a car or home — a Gen Zer will have enough money saved to pay most of it in cash. But for most young professionals starting their career, that goal may not be possible.
Auto loans are available at a lower rate than what one would expect from personal loans. This consumer loan can be an excellent way to help someone build their credit over time by making on-time payments.
Mortgages are another form of good debt that helps a person build up their credit, and it’s also an investment in the future. Most mortgage lenders require a new home buyer to pay a house down. It can range anywhere from 5% to 20%, depending on the type of loan.
Savvy home buyers can also look for ways to save money, like getting a rebate. Learn more about what home buyer rebates are and how to use them to save more money.
#14: Bank accounts
Rather than having all of their money in one account, Gen Zers should aim to spread out their money into multiple accounts. This approach spreads their wealth should one account become compromised, but it also helps give each account a specific purpose.
In general, consider having two checking accounts and two savings accounts. You can use one checking account for paying bills, including rent, groceries, and utilities. And the second checking account for spending money for wants, such as dining out and streaming services. The two savings accounts should be used for building an emergency fund, and general savings account for future spending goals.
Look for accounts that offer easy transfer options on a mobile or web device for convenience and speed.
#15: Build up savings
Following the 50/20/30 budgeting plan, Gen Zers should allocate about 20% of their post-tax income toward savings. When it comes to saving, it’s best to use an approach that spreads savings over multiple channels rather than putting all of their eggs in one basket.
As previously mentioned, Gen Z should aim to have two savings accounts. One account should be an emergency fund for emergencies ranging from car repairs to sudden and unexpected unemployment. Set a goal of saving between three and six months of living expenses in this account.
The second savings account can be for future spending goals. It might mean saving money to make a future down payment on a home or to make a significant purchase, such as buying a new dishwasher or a car.
As a best practice, Gen Z’s should schedule automatic transfers into these accounts in alignment with their payday. It will be less tempting to spend that money if it is already out of your checking account. As a bonus, high-yield savings accounts can help earn more interest and build wealth quicker.
#16: Plan for retirement
Retirement might seem like a long way off to a person in their 20s, but planning for retirement is more about the amount of savings a person makes, not their age. It’s never too soon to start planning for retirement, and Gen Zers have options.
The most common types of retirement accounts are IRAs. The most common is Roth, in which investors use after-tax dollars to contribute. Traditional IRA contributions, however, get made with pre-tax dollars. After a person pays into an IRA, the money can get invested into a portfolio to help it grow over time.
It’s important to remember that retirement plans are a long-term approach to financial planning. Most plans charge a penalty fee for withdrawing money before reaching 60 or older. And with market volatility, the strength of a retirement account will fluctuate with it — so don’t be too concerned if the account doesn’t grow as quickly as you hope.
Anyone can invest in retirement plans, but additional perks may come with using a plan offered by an employer. Many employers will offer matching funds up to a certain amount, allowing employees to grow their accounts more quickly. Alternatively, Gen Z’s can look toward automated investment platforms or invest with financial advisors.
#17: What and how to invest
Gen Zers already show a high aptitude for investing, with 54% of those in the generation already having some money invested in retirements and stocks.
A good rule of thumb is to aim to invest 10-20% of your post-tax income. It includes money put into savings and retirement funds and buying shares of stocks or investing in real estate. When paying off high-interest debt, contributing to a retirement account should be adjusted down.
Gen Zers should research and pick the best form of investment to meet their short- and long-term goals.
#18: Consult a financial advisor
Learning how to be financially independent and build wealth doesn’t happen overnight. One of the best ways to learn how to manage money is to work with a financial advisor.
Thanks to podcasts, videos, and articles on the internet, there has never been more information available for research. Also, working with a financial planner can help Gen Zer create a customized plan based on their specific wants, needs, goals, and long-term plans.
Some investment brokerages and retirement firms provide financial advisors as part of their client agreement. Some offer complimentary services while others will charge an annual service fee, so do some research before settling on one company.
#19: Protect assets
Protecting investments, whether a new or used car, a flat-screen television, or a linen closet full of bedding and towels, is essential. Getting auto and renters insurance is the best way to do this.
Insurance offers peace of mind when disasters strike. For example, insurance will replace the items if there is a fire at an apartment and a person’s belongings sustain smoke and water damage. That gives a person peace of mind and saves money in the long run.
Check with multiple agents and companies for deals to get the best deal on insurance rates and premiums. Many insurers offer bundled discounts for people who take out multiple policies, such as getting renters, auto, and life insurance.
#20: Take care of health
In addition to taking care of assets, Gen Zers need to take care of their physical and mental health by investing in a comprehensive health insurance plan. Neglecting one’s health or ignoring symptoms can lead to more severe conditions that are expensive to treat. Health insurance is an essential tool in managing the costs of healthcare.
Gen Zers can find out what kind of health insurance options are available and what their plans involve. Like other forms of insurance, they should look for a medical insurance plan that balances affordability and provides a person’s specific needs and coverage. Students and people under 26 frequently have the option to stay on a parent or guardian’s insurance plan instead of having to secure their policy.
Frequently Asked Questions
Gen Z is already ahead of the game regarding their investment portfolios. More than half of Gen Zers are already invested. A quarter of those young investors already have money in the stock market or cryptocurrency, while 1 in 10 are invested in NFTs.
Overall, Gen Z members report solid financial literacy and good money habits. Unfortunately, for many, the global pandemic caused an increase in debt for the generation, with Gen Zers owing an average of more than $16,000 in debt.
Cryptocurrency and NFTs are already popular venues for Gen Zers to invest in and buy stocks in tech and entertainment companies. Shares of Tesla, Inc. are the most popular stock holding for members of this generation.
As of September 21, 2023, Gen Z’s earn an average of $55,260 annually.