We are set up for financial failure. Money management is not taught in school, talking about your salary is taboo at work and don’t even dare to ask a friend or family member about their income. And so, Gen Z is stuck right in the middle.
According to Rocket Mortgage, not only does Gen Z feel like they have a lack of knowledge when it comes to investing, more than 40% are spending more than they earn depicting an alarming pattern.
The resources for financial literacy are endless, meaning the search becomes overwhelming quite quickly. But here are some steps that can guide you along the way.
Before you even get into your finances you have to develop an emergency fund. This is in case you get laid off, an unexpected expense comes up, anything that you might have to pay for on short notice. The recommended size of this fund is about 3 to 6 months of your living expenses. Once this emergency fund goal is met, you can move on to other financial endeavors such as investing. However, if you are currently looking to buy a house, car, or anything that you need cash on hand for, make sure to keep it.
Everyone needs to be taking advantage of tax advantaged accounts. The most common among these accounts are Roth IRAs and 401ks. Both these accounts have contribution limits and can’t be withdrawn from until age 59 ½ with some exceptions.
A Roth IRA is an account where all contributions are income that has already been taxed. However, any investments and contributions are allowed to grow in this account tax free. People who choose to contribute to this account are allowed to do so, up to $6,500 a year for 2023.
The other end of the spectrum is a 401k. 401ks are accounts where contributions have not been taxed but at the time of withdrawal the growth of the account will be taxed. This account has a much higher contribution limit and comes with a special perk depending on where you work, since many employers offer a 401k match. This means when you put money in, so will they. The percentage/amounts vary from company to company but make sure to check in with your HR department so you understand full benefits.
When most people hear investing they think of hedge fund managers or day traders but investing in the stock market is not as hard as it seems. Many people put their money into an index fund and call it a day. But what exactly is an index fund? An index fund is a type of fund where a bunch of stocks are piled into one. One popular index fund is Vanguard’s VOO, an index fund composed of the top 500 companies in the U.S. When you invest in an index fund you are putting your money into multiple areas of a market, or a sector protecting yourself from sharp declines but also from large increases.
@itserinconfortini Replying to @Lostgirlfinances my entire investment portfolio! working on increasing this to 6 figures this year :) #investingforbeginners #personalfinanceforwomen #genzfinance ♬ original sound - Erin
Credit cards are an important tool when it comes to financial responsibility. They help you build your credit allowing you to buy a home or car. Not only this, credit cards have great rewards, such as points and cash back. When using a credit card make sure to pay it on time and use less than 30% of your credit limit. Some cards have high sign on bonuses, giving you points when you receive the card and when you make purchases. These points can be used to buy flights, gift cards, or be redeemed as money. Credit cards are a great tool when used correctly, they're not as scary as they seem.
@yourrichbff Reply to @smallrocks No-fee Starter Cards! #money #creditcard ♬ original sound - Vivian | Your Rich BFF
Ayushree Dahal, (she/her) is a Bay Area based journalist.
Edited by Nykeya Woods