Anyone born between 1997 and 2012 is typically considered a Gen Z individual. With that in mind, about half of Gen Z has reached adulthood — and many are not far behind.
These individuals face unique financial challenges, such as rising college costs and inflation. However, that doesn’t change the effectiveness of time-tested financial advice such as building your credit score, improving your financial literacy, shopping for life insurance, building an emergency fund, and saving for retirement. All of these can help create financial peace of mind for Gen Z. So, with that in mind, this article will dive into five financial moves Gen Z individuals can make to secure their financial futures.
1. Build your credit score
Building your credit score can be vital to getting loans, buying a house or car, and renting an apartment. The sooner you build your score, the more and better opportunities you’ll have in these areas. Getting a credit card for borrowers with no credit history is a great way to start. By using the card on your regular expenses and repaying your full balance every month, you can steadily raise your score and qualify for better opportunities.
2. Improve your financial literacy
Financial literacy consists of your understanding of financial topics and your ability to manage and use your money smartly. Some examples of topics falling under financial literacy include:
- Using debt wisely
- Building credit
- Investing wisely
You can improve your financial literacy by reading from trustworthy sources on finances. Many banks and other financial institutions offer libraries of financial literacy content, such as blogs, videos, and eBooks. So, if you have a bank account or credit card, check out your bank or credit card company’s website to see if they have resources to learn from.
Additionally, there are many books about personal financial management and financial literacy. Reading a few of these books on different financial literacy topics can help you feel more confident managing your money.
Finally, you can consider meeting with a financial advisor to better understand how to manage your finances. They can give you advice on budgeting, investing, insurance, and other areas of finance so you can make sound decisions and work toward long-term goals.
3. Get a life insurance policy
Gen Z is still young, so many may be wondering what the importance of life insurance is. Furthermore, LIMRA’s 2022 Life Insurance Barometer Study indicates that Gen Z is one of the least comfortable generations in terms of discussing end-of-life planning.
But planning and getting life insurance early on helps avoid a lot of difficulties and stress later. Plus, policy premiums increase as you age. So, Gen Z should research affordable life insurance and consider getting a policy sooner rather than later. Two major types of life insurance for Gen Z to consider include:
- Term life insurance: Term life policies last for fixed terms of 10 to 30 years, depending on your choice. You have to renew coverage if you outlive your policy, but premiums are often quite affordable.
- Permanent life insurance: Permanent life insurance policies charge higher premiums but last for life. They also come with cash value growth components. Part of each premium you pay goes toward this component, which grows tax-deferred at a certain rate, depending on the policy type. Once the cash value is large enough, you may be able to withdraw or borrow from it.
4. Build an emergency fund
Emergency funds are savings you set aside in case you lose your job, get in a car accident, or encounter some other emergency. This fund helps you cover living expenses and the emergency costs while avoiding debt.
The general recommendation is to save three to six months of living expenses in an emergency fund. People with larger families should aim for the upper end of that range and perhaps set aside a bit more.
You may want to consider saving this money in a high-yield savings account as they can pay more interest compared with traditional savings accounts. The higher rate helps you mitigate inflation and potentially grow your savings when not in use.
5. Open a retirement account
Retirement may be far off for Gen Z, but the best time to start saving is as early as possible. Retirement accounts offer tax advantages to help you maximize your retirement investments. Some Gen Z individuals are in the workforce already. If that’s you, contribute to your employer’s workplace retirement plan. Contributions are often pre-tax, meaning they’re excluded from your income on your tax return.
Many employers offer a matching bonus, which is free retirement money from your employer. For example, imagine your employer offers a dollar-for-dollar match of up to 6% of your salary, and you earn $4,000 per month. That means if you contribute $240 this month, your employer will put an additional $240 into your account. This can add up significantly over the years.
If you’re still in school, have a job but reached your matching bonus, or want more investment choices, consider opening an Individual Retirement Account (IRA). These have lower contribution limits but let you invest in a wider array of assets. Here are the two types of IRAs.:
- Traditional IRA: Traditional IRA contributions are pre–tax, but your retirement withdrawals are taxed at your ordinary rate. You are required to take Required Minimum Distributions, or RMDs, in retirement. These are calculated by the IRS.
- Roth IRA: Roth IRA contributions aren’t tax-deductible, but qualified withdrawals in retirement are tax-free.
Secure your financial future
Taking a few steps while young can create peace of mind in the short term and get you ahead financially in the long term. Build your credit score as soon as possible. Student loans may help you get started, but getting a credit card is one of the most effective ways to accelerate your score building.
Another broad step to take is to improve your financial literacy. Consume blogs, books, and videos on financial literacy topics to learn how to manage your money and grow your wealth. As for more specific actions, look for a life insurance policy early on to save on premiums and handle some of your end-of-life planning early on. Meanwhile, build an emergency fund and start contributing to a retirement account. Follow these tips, and you can create a much more secure financial future for yourself.