The 5 biggest money mistakes of Gen Z and what the experts say you can do to fix them

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Each generation has its own way of doing things, basically. When it comes to money, the financial habits of Gen Z are quite different from those of baby boomers in the past.

See: 9 bills you should never put on automatic payment
Find: 7 Surprisingly Easy Ways to Reach Your Retirement Goals

Young Americans face a variety of challenges, including the costs associated with student loans, rapidly rising rents, a less stable job market and a highly inflationary environment. Moreover, the advent of NFTs and cryptocurrencies has caught the attention of many young people.

According to a recent Investopedia survey, these younger consumers (typically in the 18-25 age bracket) are savvy when it comes to the stock market and virtual currencies (54% have some form of investment) – but only a third of Gen Z respondents believe they have more than a beginner’s understanding of financial fundamentals like paying taxes and managing debt.

After uncovering recent reports of how Gen Z could be harming their financial health through various practices, GOBankingRates spoke to Chloe Elise, CEO and Founder of Deeper Than Money, for some expert advice on the pitfalls to avoid.

Find financial advice on TikTok and YouTube

Gen Zers are often lumped together as part of the “generation of influencers”, and many take to social media for inspiration on how to live their best life, including advice on how to manage their silver. While other demographics might turn to a banking institution or family member for financial advice, Gen Z is turning to platforms like TikTok and YouTube, according to a new survey from Vericast.

As the survey noted, 34% of respondents in this age group seek financial advice on TikTok and 33% head to YouTube tutorials, while only 24% use financial advisors.

According to Elise, this may not be the most reliable information. “I would emphasize that you can find an unlimited amount of advice online, but you have to find a funnel. You will hear tons of advice on social media, but the hardest part is finding what applies to you. This is the difference between giving advice to the masses and giving personal advice,” she warned.

“That’s why I stress the importance of taking advantage of free advice, but also taking the next step to find an expert who can adapt to your specific situation. You can search for a certified financial coach, a financial adviser or a financial adviser.

Generation Z lives with their parents while saving for retirement, but at what cost?

Another interesting trend seen among Gen Z workers is that many are choosing to invest their paychecks in retirement savings while living at home with their parents.

According to the New York Times citing a June Credit Karma survey, a third of young people are living in their childhood homes even as the job market rebounds from the pandemic. Living at home is now becoming a more permanent option, especially as rents are skyrocketing. A financial expert interviewed by the NYT said the result is because for many rent now accounts for almost half of a person’s income – when rent should typically be 20% of their income.

Yet, on the other hand, a large portion of Gen Zers are saving more for retirement than previous generations. CNBC, identifying a new report from BlackRock, noted that young workers save 14% of their take-home pay for the future, compared to the 12% allotted by millennials, millennials and baby boomers. Additionally, Gen Z has “the most confidence” in their savings.

Is this the right financial game? Yes and no, says Elise, who has another suggestion. “If you stay home and can save on rent… I’ll use that time to build your emergency fund. A good-sized emergency fund (for 3 months of basic expenses) will allow you to manage on your own with a cushion.

She added, “Once your emergency fund is built up, I would recommend using the extra cash flow to pay off any high-interest debt, or create a Roth IRA and start contributing. The beauty of paying off debt is that once the debt is gone, you don’t have to make any more monthly payments. Fewer monthly payments make it easier to start an independent life.

Gen Z holding large credit card balances

The recent Investopedia survey noted that one-third of Gen Z respondents are lacking in fundamental financial knowledge, like knowing how to manage debt. A new report supports this finding, indicating that this generation uses their credit cards at a rate three times higher than other demographic groups.

Credit-scoring company VantageScore found that balances for this age group increased 30% year over year. This figure can be compared to an 11% increase among other demographics. This is likely due to inflation and, as Business Insider notes, the fact that Gen Z incomes have not kept pace with the cost of living, which has left many “zoomers” scramble to complete.

Elise says “less is more” when it comes to using credit cards for expenses. “A credit card can be a really great tool, if you use it to your advantage – not to make the credit card company rich!”

Related: Your Credit Card Can Refund You for Canceled Flights and Pay for Lost Items – Here’s How

His advice: get a basic cashback card from your bank, and if you travel a lot, get a specific travel card to reap the rewards. But, she adds, “Be aware of the annual fee to make sure you come out on top.” As she points out, the average credit card interest rate for someone with fair credit is 23.3% (via WalletHub). And if you roll over a credit card balance, you could end up paying the credit card company 23% more than you expected.

“That gallon of gas just cost a dollar more if you put it on the credit card,” notes Elise. “I would recommend using a debit card until you can pay off your balance at the end of each month.”

Money-stuffing trend and new spending plan

Do you remember the envelope system? This system has now morphed into a similar “cash stuffing” trend that has been repopularized on social media and taken up en masse by Gen Z.

Basically, the process involves marking a number of envelopes with categories of needed monthly payments and then filling them with various banknotes – a process that aims to allocate dedicated funds to required bills before spending them elsewhere. While the system works if executed correctly, some experts have noted that it is a short-term fix…and does nothing to help 18-25 year olds build a credit from the start.

Elise’s take on the trend is to always spend in line with budgeting. “People should use whatever method works best for them. Budgeting is so personal…but when it comes to budgeting, I like to use the words “spending plan” because “budgeting” gives people the “ick” factor. Instead, think of it as planning your expenses!

She adds, “I love the bucket system, which lets you look at your past spending, see where your money is going, and then look at that number and see how you feel. Is it more than you feel good spending? Prefer to spend more in another area? I teach my clients step by step how to create their own personal program with my Wealth Accelerator. It’s so cool to see it finally click for people after years.

Generation Z addicted to impulse buying

We live in an age of short attention spans and social media manipulation, which can be a bad combination when it comes to spending habits. Seeing someone post about their lavish vacation or shopping for the latest fashion trend can make viewers feel like they should be doing the same to keep up with their peers. Such behavior, if accepted, can be devastating to personal finances.

It’s a trend Elise has also seen, and she offers some tips for getting around these blocks while keeping your money safe. “Social media and the idea that we are all bombarded with advertisements, products and companies makes it harder than ever for us to spend in alignment. To spend in alignment is to be aware and to feel confident in shopping, and living within their means. Gen Z has a much harder time with impulse spending because it’s so easy to see that pair of shoes on TikTok, use the influencer’s promo code, and buy them online. a few clicks,” she says.

“I’ve found allowing you to add something to your cart and take some time to think about it for a few hours, so you can figure out if it’s impulsive madness or something you you really want is the best practice I would recommend taking a screenshot or highlighting the items and then coming back at the end of the day or week to see if it’s still something you really want .

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For more tips and information from Chloe Elise on her Wealth Accelerator program, visit www.deeperthanmoney.com.

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About the Author

Selena Fragassi joined GOBankingRates.com in 2022, adding to her 15 years of journalism with signings to Spin, Paste, Nylon, Popmatters, The AV Club, Loudwire, Chicago Sun-Times, Chicago Tribune, Chicago Magazine and others. She currently resides in Chicago with her pets and is working on a first historical fiction novel about World War II. She holds a degree in fiction writing from Columbia College in Chicago.