Understanding Why Gen Z Isn’t Saving Enough and How to Change That

Saving money is a fundamental aspect of financial stability and security, yet many in Generation Z find themselves struggling to save effectively.

Gen Z, the generation born between the mid-1990s and the early 2010s, faces a unique financial challenge: they’re struggling to save money.

While some might point the finger at a lack of motivation, the reality is more complex.

Challenges faced by Gen Z

One significant challenge faced by Gen Z is the impact of rising prices.

From housing to education to everyday essentials, the cost of living continues to outpace wage growth in many areas.

Addressing this issue requires a combination of budgeting skills, wise spending habits, and seeking out opportunities for increased income, such as side hustles or

freelance work 

Another obstacle is the lack of financial literacy among many young people.

Without a solid understanding of basic financial concepts like budgeting, investing, and debt management, individuals may struggle to make informed decisions about their money.

Fortunately, there are numerous resources available, including online courses, books, and workshops, designed to improve financial literacy.

Taking the time to educate oneself in these areas can significantly impact one’s ability to save effectively.

Additionally, a general lack of motivation or awareness about the importance of saving can hinder Gen Z’s financial habits

Instant gratification

Instant gratification  centers around the desire to experience pleasure or fulfillment immediately, with little to no delay. It’s the “I want it, and I want it now” mentality.

Psychologists often explain instant gratification through the lens of the pleasure principle

This principle suggests we’re driven to seek pleasure and avoid pain.

When faced with a choice between a smaller, immediate reward and a larger, delayed reward, the pleasure principle can nudge us towards the quicker satisfaction.

While instant gratification can be motivating in certain situations, it can also hinder our ability to achieve long-term goals.

For example, indulging in a daily latte purchase might bring a momentary pleasure, but it could derail saving for a dream vacation.

Understanding instant gratification is particularly relevant when examining saving habits.

The delayed gratification required for saving can feel difficult when pitted against the allure of immediate purchases.

So, what are some practical steps that young people can take to secure their financial future?

Create a Budget

• Visibility and Awareness: Tracking expenses can be a real eye-opener. Many people underestimate how much they spend on seemingly small, everyday purchases.

A budget lays out your income and expenses in a clear format, highlighting areas where your money goes.

• Identifying Leaks: The budgeting process often reveals unnecessary spending.

Once you see where your money is being allocated, you can pinpoint areas where you can cut back.

Maybe it’s daily coffee shop visits or unused subscriptions. By identifying these “leaks,” you free up more money to channel into savings.

• Prioritization and Goal Setting: A well-crafted budget forces you to prioritize your spending.

It allows you to allocate specific amounts towards essential expenses like rent and groceries, while also factoring in savings goals for the future.

This visualization fosters a sense of control and motivates you to stick to your plan.

• Flexibility and Course Correction: Life throws curveballs.

An effective budget shouldn’t be rigid. The beauty of a budget is that it can be adjusted as needed.

Unexpected expenses can be accommodated by shifting funds from less crucial categories.

Regularly reviewing and revising your budget ensures it remains aligned with your evolving financial situation and goals.

Gen Z Saving habits budgeting tools

Free Budgeting Apps:

Mint: A popular app that automatically syncs with your bank accounts to categorize transactions and generate spending reports.

It also allows you to set budgets and track progress towards financial goals.

• YNAB (You Need a Budget): This app focuses on a zero-based budgeting approach, where you assign every dollar of your income a specific purpose.

YNAB offers a free trial, then requires a subscription.

• EveryDollar: Another zero-based budgeting app for Gen Z.

EveryDollar is a favorite among those seeking a faith-based financial planning approach.

It offers a user-friendly interface and is completely free.

• Google Sheets: This free spreadsheet software allows you to create a custom budget template.

While it requires manual data entry, Google Sheets offers a high level of flexibility and customization.

• Microsoft Excel: Similar to Google Sheets, Excel offers budgeting templates and allows for manual data entry.

It might be a good option for those already familiar with the Microsoft Office suite.

Investing wisely

Stocks: Ownership shares in a company that can potentially offer high returns but also carry higher risk.

Fractional shares allow Gen Z to invest in smaller portions of expensive stocks.

• Bonds: IOUs issued by governments or corporations that provide a fixed interest rate over a set time period.

Bonds are generally considered a lower-risk option compared to stocks.

Mutual Funds: Professionally managed baskets of stocks, bonds, and other assets.

Mutual funds offer diversification and potentially lower risk compared to individual stocks.

• Retirement Accounts: Employer-sponsored plans like 401(k)s and IRAs offer tax advantages and often come with employer matching contributions.

This “free money” significantly boosts long-term savings for retirement.

Why an Emergency Fund Matters

• Peace of Mind: Unexpected events like car repairs, medical bills, or appliance breakdowns are a reality.

An emergency fund provides peace of mind, knowing you have resources to handle these situations without relying on credit cards or high-interest loans.

Debt Avoidance: Without an emergency fund, unexpected expenses can push you into debt.

This can snowball quickly, trapping you in a cycle of high-interest payments and hindering your ability to save for long-term goals.

• Financial Security: A well-funded emergency fund empowers you to make informed financial decisions.

Facing an unexpected expense won’t force you to sell investments at a loss or take on risky debt.

Seeking certified financial advice

• Certified Financial Planner (CFP):

This is a widely recognized designation for financial advisors who meet rigorous education, experience, and ethics standards.

CFPs can provide comprehensive financial planning services, including investment planning, retirement planning, estate planning, and more.

• Chartered Financial Analyst (CFA):

This designation focuses on investment analysis and portfolio management.

CFAs are highly knowledgeable about investment products and strategies.

Certified Public Accountant (CPA):

While not strictly financial advisors, CPAs can offer valuable tax planning and financial management advice.

They can help Gen Z navigate tax laws and strategies to optimize their financial situation.

Bottom line

Forget instant gratification, take control of your financial future.

Budget with free apps, automate savings for effortless growth, and explore investing with micro-investing platforms.

Build a safety net with an emergency fund, and don’t hesitate to seek guidance from financial professionals.