Gen Z covers a wide age span, ranging from middle schoolers in their early teens up to young adults in their early-to-mid-20s. This generation makes up 27% of the U.S. population, according to ExplodingTopics.com.
In spite of the challenges this generation faces, with 46% saying they feel stressed or anxious “most” or “all” of the time, according to a McKinsey study, this cohort has a unique advantage when it comes to money management.
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They have plenty of time to build a solid financial foundation, begin investing for the future, and break through money blocks that may have developed in early childhood.
“Starting early is one of the most powerful things you can do for your financial future,” said Erika Kulberg, attorney, personal finance expert, and founder of Erika.com.
Here are five things Gen Z should understand about finance to get a head start on their future.
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Kulberg emphasized the importance of thinking about building wealth as early as possible.
“With time on your side, even modest contributions to a retirement account, stock portfolio or diversified investment fund can grow into significant wealth through compound interest,” she told GOBankingRates.
“Imagine you saved just $200 a month starting in your 20s,” she continued. “By the time you retire, that will have grown into a substantial nest egg. And the earlier you can start, the less pressure you’ll be under in your 40s and beyond to find a way to reach your retirement goals.”
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Gen Z is more open to money conversations, according to an often-quoted survey by Robert Half. According to the study, 86% of Gen Z has discussed their salaries with colleagues, compared to just 40% of Baby Boomers and Gen X workers.
This comfort level surrounding finances should extend to talking about money with family and friends, experts said.
“It can be empowering to share that you have a budget aloud,” said Dr. Erika Rasure, Ph.D., chief financial wellness advisor and client financial therapist at Beyond Finance. “If it comes up, it is okay to tell people that you are working on your financial goals and will be more discerning with how you choose to spend your money.”
This might mean declining an invitation to be in the wedding party of an acquaintance or suggesting game night at someone’s house instead of dinner and drinks at a trendy but overpriced restaurant.
Saying “no” to activities and choices that don’t move you closer to your financial goals can help you build an emergency safety net that will create financial security in your 30s, 40s, and beyond.
“A financial buffer can make all the difference in life. The trick here is, you don’t realize how important emergency savings are until you need them,” Kulberg said.
“Setting aside even a small amount each month will add up and hopefully allow you to handle emergencies with relative comfort, if the need ever arises.”
Many people in their late teens and early 20s open their first credit card to start building credit. But it’s important to understand how to manage credit and understand the many ways a high credit score can help throughout life.
“Your credit score is vital and absolutely something that you should prioritize working on,” Kulberg said. “Credit scores are a big factor for so many key steps towards financial freedom, including loan approval and interest rates, rental applications, and even some job prospects.
“A strong credit profile can make buying a home, financing a car or even securing business loans far easier and less expensive, helping you make the most out of your money.”
Yet, many young people don’t understand how their credit score is calculated or the steps they can take to maintain good credit.
“Maintaining a good credit score means paying bills on time, keeping credit balances low and understanding how credit inquiries work, for a start,” Kulberg said.
While a high-paying job, self-discipline to say “no” to purchases that don’t advance your goals, and a knowledge of investing, credit and budgeting can all help build a solid financial future, a positive mindset surrounding money also plays a role in success.
“We learn so many unhealthy money beliefs from our parents and others growing up, but we don’t even realize we’re taking it with us into adulthood,” said Grace Moser, owner of the women’s lifestyle website Chasing Foxes.
False “scripts” surrounding money could involve purchasing unnecessary items on credit card because of a feeling of lack or entitlement, spending money immediately because money is meant to be enjoyed, or even saving money to an extreme, when it might be wiser to invest those funds.
“Getting rid of these beliefs is such a great way to not just create healthy money habits that keep you from living paycheck to paycheck, but also pass onto your own children so they don’t have to deal with the same stress,” Moser said.
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This article originally appeared on GOBankingRates.com: 5 Financial Lessons Gen Z Should Learn Before It’s Too Late
