Gen Z Finance Tips & Advice For 2024

Generation Z—Gen Z in short—is defined by demographers as anyone born in 1997 or after. In 2024, the older end of this demographic will be turning 27 and they’ll facing a lot of financial pressures in their way around the modern world.

If you’re part of this group in 2024, you’re likely having to contend with soaring housing prices, and soaring rents. At the same time, being in the early phase of your career when your income is just getting off the ground, can make achieving financial progress feel difficult and overwhelming.

Challenges are real

“It’s a very different kind of savings environment for a young person today,” affirms Erik Johnson, Senior Economist at BMO Capital Markets. Marked by high interest rates, the situation is similar to the one faced by young adults in the mid-to-late 1980s. Except, it’s even worse today, Johnson adds, sharing that home prices and other costs used to be more aligned with median incomes in the past.

Of course, the rising cost of home ownership is only one defining theme facing Gen Z. They’re also paying at least 20% more on groceries today than two years ago, while renters are shelling out 16 to 20 % more. The cost of cars (new and used) has also risen significantly.

Johnson shares how, when his parents went to university, it was possible to make enough from a summer job to pay for both annual expenses and save for later. “Today that reality is a lot harder to achieve,” he says. “It’s daunting to think of what a young person is facing as they move into the adult phase of life.”

As difficult as things are, though, you still shouldn’t fret! You still have plenty of options to create a financial plan for your future.

Different strokes for different folks

While previous generations had the luxury of getting serious about money much later in life, the world has changed, and Gen Z should be serious about building a framework for managing finances now. However, you may also feel that what you want to achieve is different from previous generations. You likely don’t want to work at the same company your entire career and retire at 65 with a gold watch as a send-off gift. You may not want children anytime soon. Living 'at home' with family might be the reality for the majority for at least another decade. In addition to generational shifts in values and goals around finances, you also have your individual preferences.

Here are a few strategies to help you think about the framework you use to get financially prepared for the phase of life you’re in right now.

Goal setting: What you need to know about personal finance goals

The key to success with personal finance is understanding your values and aligning them with your goals. Here are a few steps to help you determine what your goals should be and how you can achieve them.

1. Make a list of your goals
2. Create a plan to tackle each goal
3. Prioritize your goals and make trade offs

Make a list of your personal finance goals

The best goals are ones that follow the SMART goal strategy. Specific, Measurable, Attainable, Relevant, and Time-based. For example, 'live in a mansion' is not a great goal according to this methodology. But 'moving out in three years into a one-bedroom condo that costs no more than 35% of my take-home pay for rent, that is within a 20-minute walk from my work' is a much better and a more attainable goal. It hits all the SMART points.

Another example would be paying off your $25,000 in student loans in four years. This is achievable and relevant and can free up some much-needed cash flow after four years for other goals.

Create a plan to reach your financial goals

Once you have all your goals, you can then figure out what needs to happen to achieve them. For example, if a different goal is to plan a specific vacation 18 months from now, you would ideally have priced it out and then can set up an automated savings plan to track to that goal. If you estimate that the trip would cost $2,500, then you might set aside $138.89 per month into a high-interest savings account. After 18 months, you would have the cash set aside to fully pay for the trip.

Prioritize your personal financial goals

Once you’ve listed all your goals and the plans associated with achieving them, you might find that you won't be able to afford them all. This is where you'll need to make trade-offs. Some goals will have to be parked, while others might need to be modified by either lowering your target, or adding time to when they can be achieved. For example, perhaps hitting your goal of moving out in three years and taking a vacation in the next 18 months gets modified by either aiming for a less expensive travel destination or delaying moving out by a year. When you line up the possible trade-offs against one another you will find that your priorities become clear as to what is more important to you.

The importance of setting personal finance goals for Gen Z

The great thing about setting goals is that it gives you something to aim for – a light at the end of the tunnel, so to speak. And as anyone who has ever tried to achieve anything knows, having that goal in mind can be one of the biggest motivators around when it comes time to stick to a budget or save for an important purchase.

On the other hand, not having any sort of financial goals set up can often lead people into bad habits like overspending, neglecting their savings account and more.

Start saving and/or investing now

A typical mortgage might last 25 years, but in 2022 it's been estimated that saving up a down payment for a home in Toronto or Vancouver can actually take longer. Gen Z might find that the advice of saving for retirement doesn't resonate because there are so many competing goals between now and then. Housing is one. Career flexibility is another. When you are younger, you can set up a long-term investing account for your non-retirement, long term goals such as these.

By building up a pot of money that is growing faster by virtue of being invested appropriately, you build up the flexibility of being in a better position one day to put down a down payment on a home, or to have a sizeable resource to reduce the anxiety of job loss or changing career. It can also help serve as an emergency fund (although a smaller, dedicated emergency fund is also a good idea, too).

You can absolutely invest for the long-term while still paying down debt, especially if it's low interest rate debt. But if you carry a balance on credit cards and are paying double digit rates of interest, you'll be better off aggressively tackling that first.

Take advantage of the opportunities

Keeping in mind the cost of living in Canadian major cities, it may take 20 years for Gen Zers to accumulate a down payment. That’s why saving early is more important now than ever before. The good news is there are several financial vehicles available today that young people could take advantage of. If you’re planning on purchasing a home, for example, the new First Home Savings Account (FHSA) can prove extremely advantageous, says Johnson, as it offers inaugural home buyers the opportunity to save for their first home tax-free.

If you put some money aside through the FHSA when you’re in your 20s, you’ve already set yourself up well for when you’re ready to buy. “It makes you more thoughtful on how you use your funds,” explains Johnson. “It’s a nice development that is offering people a way to combat some challenges on road ahead.”

With higher interest rates, it’s also nice to have an alternative to equities as an investment option. Johnson, for one, is a fan of Guaranteed Investment Certificates (GICs) which guarantee 100% of your original investment, while earning interest at a fixed or variable rate. “They make it easier to confidently set aside money and navigate the challenges Gen Z will face with life’s future milestones.”

You don't have to know it all, but you need to empower yourself with financial knowledge

The idea that 20% of your actions drive 80% of your financial outcomes is not hard to understand. But it can be very hard to put into practice because it’s about psychology more than it’s about math. Everyone knows that you must spend less than you earn, but the world around us is always trying to convince us to part with our hard-earned money.

It's also important to think about the sources of information that are competing for your attention. Some people peddle get-rich-quick schemes or strategies on social media and a good rule of thumb is that if it sounds too good to be true, you'll want to play devil's advocate and perhaps look for dissenting opinions. More and more professionals like financial advisors, accountants, investors are also sharing content online to help cut through the noise. It's good to not only diversify your portfolio, but also your sources of information.

Over time, you'll likely start to develop a better grasp of what's hype and what's not. Remember, boring is usually beautiful when it comes to making decisions about money. Managing your money isn't always sexy, but it's not supposed to be. It's supposed to help align your values with your goals and create plans to achieve those goals responsibly over time. Rome wasn't built in a day, but the hard-fought battles lead to a sense of accomplishment and achievement that is hard to beat. You've got this.