It is often thought there is never too young of an age to help young people shape a healthy relationship with money. Involving younger generations in finances and helping them understand the value of money teaches them a variety of vital skills including how to budget, how to save, an how to set and achieve money goals. Kitty Thomas, life-long entrepreneur and Founder and Director of Debt Angel Solutions shares how we can prepare younger generations so that they can enjoy more financial freedom.
How are we equipping the youth of today to manage their financial obligations?
I’m not entirely sure we are. Knowing little other than the ‘tap-and-go’ environment we’re currently in, Gen Z have largely missed out on the practical components of handling your income that we older generations have enjoyed. As a mother of two teenagers, I can see that keeping a clean and positive credit score and creating good financial habits that support the path of financial success can be challenging for Gen Z.
While I’m not sure what schools across the country are doing to equip the next generation, I do know there are certain holes that as parents we certainly need to fill. We now live in a society that prioritises instant gratification. ‘Cash is king’ perhaps no longer applies given our reliance on cards and tapping. This means when it comes to handling currency and creating change, younger generations are behind the eight ball. Particularly when it comes to online shopping and the various different methods of payment. While payment schemes like ‘Buy Now, Pay Later’ may seem like an attractive option, they aren’t. Particularly amongst younger generations who have not been as exposed to the skillset of saving, budgeting, and forecasting for the future payments. From what I’ve experienced, conversations between parents and their families around interest, money management best practices and setting financial goals, haven’t been the norm for quite some time. This is leading us quickly to building a generation of Aussies who don’t understand the value of a dollar. If we are to equip the youth of today to effectively manage their financial obligations, we need to promote conversations about the pros of saving for what we want vs. the potential fall outs of purchasing without planning.
What financial habits and strategies can generation Z adopt to build their financial literacy and achieve financial independence?
Teaching kids about money from an early age, and having healthy conversations about the cost of living – everything from the family budget, the cost of everyday food, and allocation of funds in particular is really, really important. Saying things like ‘if we buy x then we won’t buy z’ may sound simple but the long term impact helps support an understanding of financial priorities and negotiations. This creates good money habits, particularly if you’re working with your children.
Managing pocket money is often the first practical opportunity for younger generations to experience the transfer of cash for time or goods. Providing pocket money, and then empowering children to manage that money effectively can be invaluable. My advice would be to provide cash rather than transferring money. The practicality of counting out money and holding that money in their hand before it is spent, can lead to a greater appreciation for money. It also leads to greater conversations around forward finance planning. Encourage splitting up money and storing them in different envelopes – what can be spent now, in the future, and savings.
Building financial literacy also means making sure Gen Z knows the cost of credit. ‘Buy Now Pay Later’ sure looks attractive, but what is it costing you when you consider ongoing payment fees, late fees, and interest rates?
It can also be an incredibly rewarding feeling to watch your savings grow – either in a back account or an envelop in your top draw.
My best advice for promoting financial independence is to:
- Make sure there is a savings plan in place.
- Get into a spending routine, making sure you’re putting money into your savings account first always, and then you budget whatever is left after savings to pay your bills and whatever is left is spending money.
- Employ the 24-to-48-hour rule. Impulse buying without the means to pay it back is an enemy of financial freedom. Get into the habit of taking some time to consider if you really want something. Ask yourself whether you really need said item, or if you just want it and if you can afford it. If after 24 to 48 hours you do, what is the best path to purchase it without putting yourself in debt.
What are the greatest financial challenges generation Z have had to overcome and will need to overcome in the future?
Having to part with cold hard cash in your hand and looking at what’s left in your purse before considering the next purchase has, unfortunately, become a thing of the past. Gen Z live in a tap-and-go society and it’s very easy to lose track of what’s actually sitting in the bank. Before you know it, the money is gone but the financial responsibility of covering the bills doesn’t stop.
My advice for Gen Z’s looking to better balance their income is to create sub accounts in their bank account (this works in a similar was as the envelope method). Set up an account specifically for savings, everyday spending, and bills, other financial obligations and an emergency fund shoot for 10% of your income to be added monthly to for your emergency fund. You’d be surprised how little you miss it once you’re in a routine.
Having a savings plan also gives you the opportunity to celebrate success – no matter how large or small you perceive it to be. If saving $20 a week is your goal, stick with it.
What are some common financial mistakes made by Generation Z and how can they avoid them in the future?
Our kids are being brought up in a world of instant gratification, and that’s leads to overspending. A lack of financial planning, along with paying off items purchased months in the past, can lead to a path of debt.
I think the most common financial mistake is not taking a moment to check in with yourself, stepping away from the purchase to see if you really want it or need it. They can take a moment to work out what the total cost is for whatever it is that they’re going to buy and then they can make that decision based on time, the real cost, and desire. Referring to a monthly or weekly budget in that time can also reinforce what you can actually afford.
What advice do you have for members of generation Z who want to achieve financial freedom but may not know where to start?
My number one piece of advice is to know your numbers.
Know how much money you’re earning, how much money your tax is, how much you’re paying out, how much money you need for groceries, rent, accommodation, car, tires, services, everything you can think of, put it into a budget and allocate your money according to what you need so you don’t end up being cooped up.
If you are going to go and get into debt, what is it that you’re debt is going to cost you? If you get a credit card and the interest rate is 29.99% because you’re buying a new fridge, you may have no interest for 24 or 48 months but after that, the interest is so high and cost of living expenses, etc. have gone up and if you haven’t budgeted to clear that account, you’re going to be paying pure interest down on that account.
Also, know what that worst-case repayment scenario would be. Have a savings plan in place. Know what that saving amount is, and make sure that’s the first thing to get paid and it’s not compromised. If you can stay ahead of the curve and keep yourself in a good financial position, you never have to go into debt.
SheSociety is a site for the women of Australia to share our stories, our experiences, shared learnings and opportunities to connect.
Leave a Reply