Move over millennials. While 20- and 30-somethings have seemingly been the center of attention for years, Generation Z is getting ready to move into the spotlight.
Generation Z is the name often used for post-millennial young adults, and depending on whom you ask, the oldest members are somewhere between 18 to 22 years old. The Pew Research Center defines the post-millennial generation as individuals born in 1997 or later. While the typical millennial view toward money management may have been shaped by the so-called Great Recession, the young adults of Generation Z have come of age during the second-longest stretch of economic expansion since the Great Depression.
“Generation Z is actually remarkably aware financially, more than we expected them to be,” says Andrew Vahrenkamp, a senior research analyst with financial research firm Raddon, a Fiserv company. Raddon analyzed data from 2,500 teens between ages 16 and 18 for a report issued last year, which found that two-thirds of young adults surveyed already have a financial account. And according to the report, teens were three times more likely to have taken a financial education class or seminar as compared to millennials.
[See: 12 Millennial-Inspired Ways to Spend Less.]
U.S. News spoke to finance experts who, like Vahrenkamp, are optimistic about the direction Generation Z is taking when it comes to money matters. However, they say that this generation of digital natives could make missteps when it comes to how they gather information, share data and spend their money.
In particular, the following money mistakes and misconceptions could potentially trip up Gen Z, according to experts.
1. Incorrect financial information could be a click away. Digital access is what seems to define Generation Z more than anything else. “They’ve had access to the internet since day one,” says Jerry Nemorin, CEO of debt consolidation firm LendStreet.
That means it’s easy for teens and young adults to find information about saving, spending and investing. However, it can be hard to discern what is good advice and what tips are better left unheeded. “We’ve seen that the internet is easily manipulated,” Nemorin says. “The onus is on you to understand what is true [and] what is fake.”
Fortunately, some teens might not have to make that judgment call just yet. Raddon found 84 percent of Gen Z members surveyed report relying on parents or family for financial information. That may be better than turning to online sources, assuming parents understand financial topics themselves.
2. Financial technology comes with risks. The next generation doesn’t seem to have many qualms about adopting the latest financial technology. In fact, 44 percent of those surveyed by Raddon expect to conduct financial business with an organization like Apple, Amazon or Google rather than with a traditional bank.
However, young adults need to be aware that financial technology companies don’t operate under the same regulations as banks and don’t have the same consumer protections. For example, money held in savings, checking, money market or certificate of deposit accounts at most U.S. banks is insured by the Federal Deposit Insurance Corporation. That means each depositor can be reimbursed up to $250,000 should the bank fail. However, a balance held in a payment service app like PayPal or Vemno doesn’t get that same protection.
Using technology isn’t always a bad financial move though, says Karam Hinduja, founder and CEO of the Karma Network, which creates original programming for investors and innovators. Apps like Robinhood, which is free, and Acorns, which costs between $1 and $3 per month, make it easy to start investing. Meanwhile, sites like LearnVest and the Karma Network promote financial literacy. “There’s a prospect of being a lot smarter as an investor,” Karam says. Generation Z just needs to learn how to balance the risk with the reward.
3. Not all debt is bad. After witnessing a generation of millennials weighed down by student loans, Generation Z seems to have become debt-averse. “From what we’ve seen, they are really hesitant to load on debt,” says Andrew Rafal, founder and president of financial planning firm Bayntree Wealth Advisors in Scottsdale, Arizona.
“There’s nothing wrong with having no debt,” Rafal says, but it could limit options as young adults get older. A mortgage is almost always a necessity for those wishing to buy a house, and those without any credit history may find it difficult to qualify for favorable loan terms.
No one is arguing a 20-year-old should take out a loan without careful consideration. And as this generation matures, they may find it beneficial to focus on the smart use of debt rather than avoiding it altogether.
[Read: 6 Money Management Mistakes Millennials Often Make.]
4. DIY money management can have drawbacks. As digital natives, members of Generation Z aren’t interested in making calls and filling out paperwork to complete financial tasks. They want to do things quickly and digitally, Vahrenkamp says.
Craig Simms, senior vice president and chief marketing officer of Vantis Life Insurance Company, says that’s something being discussed in his industry. “We talk a lot about how this generation is not going to buy life insurance the same way as their parents,” he says. That’s why Vantis is launching a direct-to-consumer process in July that will let people complete an entire life insurance purchase online and on their own.
Do-it-yourself financial purchases aren’t new. Online brokerages like E-Trade helped pioneer the practice when they began letting investors buy and sell stocks directly. However, they may be more readily embraced by young adults. Generation Z needs to be mindful to not make poor decisions because they lack in-depth knowledge and have chosen to bypass guidance from experienced financial professionals.
5. An Instagrammable life is inexpensive and attainable. From the tiny house movement to minimalism, the trend nowadays seems to be to eschew material goods. Generation Z seems to be following in the footsteps of millennials when it comes to rejecting consumerism, but that doesn’t mean they aren’t still trying to keep up with the Joneses. “In the past, [that] meant a big house and a big car,” Nemorin says. “This time around, it’s more about experiences.”
Older teens and young adults may view the world through the lens of their social media feeds. In their quest to snap their latest adventure or document a fabulous meal on Instagram, they could end up spending more than they intend. Before getting caught up impressing their friends on social media, Gen Z members should make sure they have a written budget for common expenses, such as dining and travel costs.
6. Dismissing traditional jobs. Hinduja says he doesn’t see preteens gravitating heavily toward traditional jobs, like those of doctors and lawyers, as they may have in the past. “We’ve grown up in the age of our heroes being successful entrepreneurs,” he says. That, in turn, inspires many teens to follow a similar path.
Likewise, teens who follow the work of YouTube creators, Instagram influencers and Snapchat celebrities may be under the impression this is a viable career choice for anyone. “There is this assumption that if you carve out a personal [brand], there is a way to monetize it,” Hinduja says.
Though such career choices may be possible as young adults age, Generation Z shouldn’t overlook the income and stability offered by more traditional, albeit less flashy, occupations. They should also remember that in the gig economy, it’s easy to turn a traditional job into a flexible career. For example, accountants may work side hustles at tax time, while attorneys may find clients on web platforms such as UpCounsel and Lawyers on Demand.
[See: How to Manage Your Money in Your 20s.]
For the most part, Generation Z is money savvy and financially aware, according to experts. Young adults just need to be mindful of these six things so they can continue on the path to financial success.
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6 Things Generation Z Gets Wrong About Money originally appeared on usnews.com
