Gen Z
Tips and tricks from experts on how Gen Z can make use of their money. Image Credit: fauxels/Pexels

In an age of global economic uncertainty, it is crucial for Generation Z (Gen Z) to embrace a proactive financial management approach to make the most of their spare cash each month. Here’s a comprehensive look at how you can navigate your financial landscape effectively.

1. Invest, invest, invest, and then invest some more

When you invest, you offer yourself a pathway to long-term wealth accumulation. Apps like Robinhood and Acorns provide accessible platforms to start investing with minimal initial capital. Fractional shares enable investments in high-value stocks like Apple or Google without needing to buy full shares, making it easier for young adults to diversify their portfolios.

Sara Avera, cofounder of GCME, said how Gen Z should stay consistent in putting an amount every month on the side to make investments. 

“For example, let’s say that your monthly salary is Dh10,000 and you will invest 5 to 10 per cent of your monthly income every single month, which will be Dh500 – Dh1,000. If you keep your spare cash saved in the bank, the only person you’ll be helping is the bank. Why, you might ask? Because the bank will take your money and invest it, then give you back only a small percentage. Money depreciates in value over time, and you have to find ways to beat inflation.”

Historically, inflation has been 4 per cent every single year, meaning that 10,000 in the bank this year is going to be 9,400 next year. Instead, I recommend you invest it in an asset. Some of the safest investments you can make are stock ETFs, which are basically a basket of different stocks of some of the biggest companies in the world, like S&P100 or Nasdaq. This will allow you to diversify your portfolio while including lower risk and lower volatility

- Sara Avera
What is an ETF?
It is an exchange-traded fund - a type of investment fund that is also an exchange-traded product, that is, it is traded on stock exchanges. ETFs own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars.

Renoy Kundukulam, CEO of a wealth management company, Finmark Capital says that every 25-year-old now can follow a simple rough guide to become a millionaire by the time they reach 40 years old. He talked to Gulf News about a method turning Gen Z now from financial uncertainty to stability.

“One effective method is adopting a structured financial regimen, such as the 40:30:30 method: allocating 40 per cent of income for daily expenses, dedicating 30 per cent towards Equated Monthly Installments (EMI), and saving the remaining 30 per cent to build assets.”

A key strategy within this framework involves starting early with investments, such as through a Systematic Investment Plan (SIP). For instance, to become a millionaire before they reach 40, they can simply start by saving Dh2000 monthly, with a 10 per cent annual increase, compounded at an 8 per cent annual growth rate

- Renoy Kundukulam
What are EMI and SIP?
An EMI is an equated monthly installment is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is fully paid off along with interest.
An SIP is a plan in which investors make regular, equal payments into a mutual fund, trading account, or retirement account, allowing investors to save regularly with a smaller amount of money.

2. Keep yourself safe with savings

Establishing a savings habit is crucial for financial stability. Traditional savings accounts at online banks such as Ally or Marcus by Goldman Sachs offer higher interest rates than traditional banks, ensuring that savings grow over time. Automatic transfers from checking to savings accounts can streamline this process, fostering financial discipline.

Vijay Valecha, Chief Investment Officer, of global financial markets company Century Financial, said, “Time deposits, such as fixed deposits or recurring deposits offer a safe investment option with guaranteed returns, albeit typically lower than riskier investments.”

They are an excellent way for risk-averse individuals to grow their savings without exposure to market volatility. New-age banks like Liv and Wio offer attractive rates on their savings accounts, and it's easy to open accounts with them as well.

- Vijay Valecha

“Wio for instance offers 5.5 per cent per annum on dirham savings in Fixed Saving Spaces, and 4.25 per cent per annum on US dollar savings in Saving Spaces. Liv, on the other hand, often accredited as the best digital bank among Gen Zs, can help you open a bank account within minutes, and helps the account holder earn up to 2 per cent per annum on the funds in the Liv Goal Account.”

3. Go for high-yield savings options

If you are seeking higher returns while maintaining liquidity, high-yield savings accounts are an attractive choice. Platforms like Discover Bank and Chime offer competitive interest rates, allowing Gen Z to grow their savings more effectively than with traditional accounts.

Valecha said not everyone is willing to delve deep into the investment world. “For those who are not quite ready to dive into the stock market or other investment vehicles, starting with a high-yield savings account is a solid choice. These accounts typically offer higher interest rates than standard savings accounts, allowing your money to grow faster as you build an emergency fund.”

4. Look into buying and selling digital currencies

Platforms like Coinbase and Binance offer user-friendly interfaces for buying and trading digital currencies such as Bitcoin and Ethereum. While volatile, cryptocurrencies present an opportunity for significant returns for those willing to take calculated risks.

“Another great investment is cryptocurrencies like Bitcoin and Etherium. As we witnessed, this year has been a massive year in crypto, with big financial institutions entering the market, which only legitimises crypto. Bitcoin has a limited supply of 21 million coins, and every 4 years, the Bitcoin halving event happens to cut down the supply of it because the quantity of Bitcoin is limited and the demand for it increases.” 

“That’s what makes it safe to invest because even if it crashes, it doesn’t go down to the lowest low. The halving event happened in April of 2024, and the halving event in one year shows historically that Bitcoin reaches an all-time high. I personally think that technology continues to advance, and the use of crypto will become more normalised a few years down the line,” said Avera when asked about the advantages of turning to investing in digital currencies.

STOCK cryptocurrency ether etherium
Representation of Ethereum, with its native cryptocurrency ether, is seen in this illustration. Image Credit: Reuters

5. Invest in yourself: Education and Skills

Investing in education and skill development can yield lifelong dividends. Online courses and certifications through platforms like Coursera and LinkedIn Learning enhance career prospects and earning potential.

6. Make socially responsible investments

Gen Z values social impact alongside financial returns. Investing in companies that prioritise environmental, social, and governance (ESG) factors through platforms like Swell or Impact Investing Network can align financial goals with personal values.

Kundukulam said given Gen Z’a digital fluency, they can leverage online resources to enhance their financial literacy and decision-making. He spoke about diversifying portfolios as well as saying, “They can explore avenues like ESG (Environmental, Social, and Governance) investing, which promotes sustainability and corporate responsibility.”

“Additionally, diversifying their investment portfolio beyond cryptocurrencies and NFTs to include established tech giants and emerging sectors like robotics, blockchain, cybersecurity, and quantum computing can offer growth opportunities akin to past tech successes.”

Avera talked about the diversification of portfolios. She said, “Just don’t keep all your eggs in one basket, and when you invest, only risk what you’re willing to lose. Whether it’s stock ETFs or crypto, buy and hold it in the long run and use the dollar cost average method. By that, I mean if you put 500 and that 500 becomes 1,000, you can remove your initial amount. That way, you are investing risk-free without stressing.”

You have a plethora of options to make your spare cash work for you. Whether through investing in stocks, saving in high-yield accounts, exploring cryptocurrency, investing in education, supporting charitable causes, or a combination thereof, you can build a solid financial foundation early on. By leveraging technology and staying informed, you can navigate financial challenges with confidence, setting yourself up for long-term financial success and stability in an ever-changing economic landscape.

Ahmad Hammouda, co-founder and CEO of digital investment platform Thndr raised an interesting ideology that goes around in his company. 

“At Thndr, we don’t believe that any cash is ‘spare’. What we believe in is that: Everyone should have three financial goals - building for long-term wealth, making sure an emergency fund is in place, so if things ever get tight, you have 6 months of salary to secure you, and finally, preserving the value of your money and protecting you against inflation.”

What’s great about this, is that there’s an asset class for each goal - investing in companies for long-term wealth, time-deposits/savings funds for your emergency fund, and finally gold to protect you against inflation. Now if you take those two rules to heart - ‘spare’ cash will always have a purpose that will reap it’s rewards in the long-term

- Ahmad Hammouda