Dubai: Across the world, multiple surveys have been revealing how not saving enough was at the top of the list of money-related regrets for millennials, closely followed by taking on credit card debt.
However, when it comes to Gen Zers, they say budgeting, credit, borrowing and investing are subjects they wish they knew more about as they begin taking charge of their financial life, the surveys reveal.
Bilal Ahmed, an Abu Dhabi-resident aged 24, confessed breezing through the initial part of his young adult life not caring much for money, but added that his perspective on his financial well-being started changing when he began living alone and bills needed to be paid on time to avoid dire consequences.
“Many factors like peer pressure, cultural and family upbringing influence the money habits of young adults. But its real-life experiences that often inform their financial knowledge for the better,” agreed Dubai-based financial planner Andrea Barber, who is licensed to coach people on money-related issues.
How exactly are GenZ’ers planning their finances?
US top lender Bank of America conducted a global survey ‘Better Money Habits Gen Z Pulse’ among 1,000-plus adults aged 18-24 late last year to explore their financial priorities as they work to establish their financial footing and look ahead to what’s next as they emerge from the pandemic.
In the past year, the survey showed 70 per cent added to savings, 29 per cent mapped out financial goals, 26 per cent contributed to a retirement account and 26 per cent invested in the stock market. Despite pandemic-related financial challenges, nearly 7-in-10 are optimistic about their financial future.
“I know I am supposed to be setting financial goals and possibly start investing small amounts at least, but I haven’t got around to that yet. But I do save 15 per cent of my income for the future expenses, which can be for anything major,” Ahmed added. “My parents and friends advised me to, so I do.”
However, another 2021 survey by global personal finance market researcher MagnifyMoney, indicated that 27 per cent of Gen Z decided to make building credit a financial priority, while 61 per cent of college students revealed that they would take a job they’re not passionate about to pay off education loans.
I know I am supposed to be setting financial goals and possibly start investing small amounts at least, but I haven’t got around to that
Overspending, a problem for millennials from ‘lifestyle creep’
“In my experience, overspending was seen to be a main problem for most millennials who seek help in managing money, with most of them saying they had no money left at the end of the month,” added Barber. “Rentals, new subscriptions, ordering in daily are examples of ‘lifestyle creep’ for millennials.
Lifestyle creep, or lifestyle inflation, happens when your income increases, but your spending increases at a greater rate. Experts say to not spend more until you have more cash to spend.
“In an ideal world, more income should not create more debt – especially when it comes to millennials. While your raise may make a big difference, it still may not enable you to keep up,” said Barber.
“At the same time, not having a handle on your finances – missing bill payments, monthly debt-related dues – can negatively affect your credit score. In fact, prudently handling your finances, expenses can improve your credit score. So that would be my advice to the newer generation.”
Dubai-resident Kishan Singh, 39, currently working as a software developer, admitted having spent more whenever each new job brought in a higher pay. “I learnt my lesson after spending way too much and landing myself in more debt last year than ever before. Now, I’m able to manage money better.”
Lesson for GenZ’ers: ‘Lifestyle creep’ can sabotage savings slowly but surely
Millennial mistake: Ignoring budget, credit card interest rates
There are two ways you can go wrong with your budget: Either not having a budget or not following your budget. Getting a handle on your income and how your monthly expenses add up can give you perspective on your spending, explained wealth advisor Mohammad Shaan.
“Once you have a budget and understand where your money is going you can make choices about whether or not you can afford any extras. Ignoring your budget is one of the fastest ways to get in over your head with money mistakes, with research indicating millennials being found guilty of this.”
This is also a lesson Singh learnt. “I was able to get myself out of debt this year only after I took control of my outgoing and incoming cash flow, while keeping track of routine expenses better. I only wish I had done this at the start and I’d be more financially equipped now, but experience has taught me well.”
Additionally, while credit cards can be great tool to help you make purchases with ease, Shaan cautioned that the trouble is purchases, both big and small, can be made without a lot of thought and the next thing you know you have a balance that's bigger than you can pay off at the end of the month.
“When balances go unpaid, you incur an interest charge. While once in a while, or for an emergency, an interest charge can be manageable, unpaid balances can accumulate and so does interest,” added Shaan. “So not allowing dues pile up is a practice early on before you start handling more money.”
Lesson for GenZ’ers: Pay off credit card dues by tracking them to avoid common debt traps
Ignoring your budget is one of the fastest ways to get in over your head with money mistakes, with research indicating millennials being found guilty of this
Gen Z, millennials likelier to struggle with short-term money troubles
It was interesting to note that Gen Z and millennials are likelier to struggle with work and short-term financial implications than their older counterparts, according to a recent global study from US-based life insurer MetLife.
About two-thirds of Gen Z members say general decisions about life and money are making them feel anxious amid the pandemic, the global study found. That’s more tension than millennials expressed, at 52 per cent.
Gen X, the generation born between 1965 and 1980, is a bit more relaxed, at 41 per cent, and only a quarter of boomers said decision-making sparks anxiety, the study further inferred.
Both Ahmed and Singh agreed that financial matters stressed them out comparatively more than their parents or those older, while adding that it turns out that it often was crisis-like events which turn out to be a wakeup call for them and their friends who may have been taking financial health for granted.
Lesson for GenZ’ers: Money needn’t be a long-term worry when finding a financial footing sooner
“The bottom line is in your 20s, you can start setting a foundation with habitual and periodical savings that needn’t amount to much right away. That way, you won’t smack yourself in the head in your 30s,” added Shaan.
“Setting a small, manageable goal is a great way to build this skill. Make a game out of saving and a deadline to achieve it by. Saving gets addicting as you see the numbers start to grow.”