Without proper financial education, this year will be a baptism of fire for Gen Z
Whilst a recession has an impact on every generation, in 2023 it’s Gen Z who are going to find the transition into a sharp economic downturn the hardest. With no savings, and finding themselves just entering the world of work, this prolonged period of economic uncertainty coincides with the first time many of them will have had to manage their finances independently. Gen Z are also the most financially illiterate generation, according to a recent report by the TIAA Institute.
It’s easy to see how the combination of relative inexperience and an acute cost-of-living crisis could be a real issue for this generation. They’ll have to figure out how to budget for spiralling rent, rapidly rising bills, grossly inflated food prices, all whilst hopefully putting at least a little away just to live their lives. This year looks set to be, for many, a financial baptism of fire.
In many respects, it’s harder than ever to save money – especially for digital natives. As the way we spend money changes, how we learn to handle it has to change, too. Anyone who has used social media in the past few years knows that even when browsing a friend’s Instagram, or scrolling Twitter, you’re just one click away from spending money. With lower friction at the point of spending comes an increased likelihood that you actually will pay. It’s harder to keep track of these purchases, too. With no tangible, real items to hold immediately, transactions can become abstract things, removed from a real understanding of your finances.
Physical cash used to be a great way of visualising how much you have to spend, almost like a mini-budget inside your wallet. Nowadays, you don’t even need to have the money to spend it.; you can put it on your credit card, or use a whole host of payment systems that encourage you to buy now, pay later.
There’s a cultural shift happening too when it comes to saving money, thanks to stories of mind-blowing crypto gains, and meme-stocks going ‘through the roof’. The less romantic – and much more sensible – option of working away on continuous savings can seem boring in comparison. It’s easy to feel like you’re missing out when we’re bombarded with stories of people who ‘aped’ it and made millions. If you combine this constant promotion of a highly lucrative, but risky lifestyle, with the fact that one third of adults in the UK say they do not feel confident about managing their money, it’s clear why, as we move into next year, it’s looking harder than ever to work on your savings.
That’s why we need much, much greater financial literacy.
Only 15 per cent of more than 2,000 kids aged between 15 and 18 cited school as their main source of financial education, when surveyed by the London Institute of Banking and Finance. This is shocking when you consider that a significant portion of students will be taking out sizable student loans the moment they finish their schooling.
This illustrates a real problem at the heart of financial education, but it also shows how easy it is for failures in the sector to continue to widen economic disparity. In fact 56 per cent said their parents were their main source of financial understanding.
The key is to teach people how to be smart with their money, from deceptively simple solutions, such as working with a partner or family to prioritise savings, to the more creative, like setting one specific day a week as a regular ‘spending-free-day’. Whilst these options may not be as alluring as an altcoin moonshot, or a memestock frenzy, the truth is, young people need to learn that managing money is about time, diligence and care. The sooner we teach our kids this, the better.