The Smart Girls’ Guide To Finance: Gen Z’s cautious approach toward financial stability

As digital natives, Gen Z not only has easy access to information on finance and wealth accumulation but also ease of access in terms of making those investments

Born in the late 1990s or the early 21st century, Gen Z is largely perceived as being familiar with the use of digital technology, the Internet, and social media from a very young age. Switch to their representation in popular media—self-obsessed, swashbuckling digital natives who live in the moment and squander whatever little money they make. 

There are several factors that set this generation apart from its predecessors. One of the key differentiators is their awareness of wealth and the different concepts around wealth, says Shreyas Hegde, CEO and co-founder, Viral Fission, a youth community platform. They have, at their fingertips, access to information about finance and wealth accumulation, from documentaries to podcasts, to posts on social media, talks about wealth creation, IPOs, start-up funding, and valuations. “This awareness is backed by the ability to begin their investment journey digitally without hassles, making this generation dip their toes into the financial world much earlier,” he says.

However, having witnessed earlier generations—including that of their parents—grapple with the economic instability a recession or a global pandemic brings, this generation is smashing the long-held stereotype. For the most part, Gen Z is  taking a more cautious approach to financial security and wealth accumulation. With age and time both on their side, they are also best poised to start their wealth accumulation journey early. 

The generation born from 1997 to 2012 is inclined to rather save than spend. About 32 per cent of respondents surveyed in 2021 chose savings, according to the study by Viral Fission. About 23 per cent of the 5,800 Gen Z respondents surveyed favoured the safety of fixed deposits, which was almost double the number of those leaning toward investing in cryptocurrencies.

“The Coronavirus pandemic played an important role in the attitude of Gen Z toward personal finance,” shares Aditya Anand, chief revenue officer at Viral Fission in a media report while discussing the findings of the 2021 report. “The post-pandemic uncertainty instilled a sense of responsible spending in the minds of the youth.”

Where is Gen Z parking their newly minted money?

Young investors are drawn more towards stocks and mutual funds, ETFs (Exchange Traded Funds), and SIPs (Systematic Investment Plans) among other investment options such as fixed deposits. According to a recent industry report, out of a total 1.6 crore new mutual fund investors in the last five years, more than 50 per cent were Gen Z. Low brokerage charges, easy-to-use apps, and small investments are the key factors pushing the use of micro-investing apps and discount brokerage players among Gen Z in India, says Soumya Dwibedi, partner, Consulting, Deloitte India. 

But Gen Z is also displaying a significant interest and investment in non-conventional assets such as cryptocurrency, foreign stocks, digital real estate, NFTs, and even sneakers. “These investments are attractive to younger investors because of the potential for high returns, ease of digital transactions, and the ability to invest in something unique and creative,” he says. 

According to a more recent survey by Viral Fission in 2023, covering more than 2,000 individuals across India, Gen Z preferred FDs and Mutual Funds as much as they did cryptocurrencies. While Gen Z is exploring new age or ‘neo’ banks, traditional banks—especially PSUs—still hold sway with them. Approximately 70 per cent of student respondents were banking with a central or regional PSU bank. This trend may be attributed not only to financial considerations like student loans but also to the traditional association with these banks by their parents.

A number of respondents, who were still in college, were receiving pocket money, with around 12 per cent receiving more than ₹ 5,000 per month. A fair number also had internships or gig-style jobs that provided them with a non-steady income.  

Digital Natives

Gen Z grew up with technology, being exposed to the Internet, smartphones and digital platforms from a young age. “This early exposure has made them more comfortable in navigating digital spaces, including investment platforms. They also seem to trust them more, and hence have a higher propensity to use robo-advisors, automated investment solutions and so on.” says  Dwibedi. 

This simply means that as digital natives, Gen Z not only has easy access to information and content, including that on finance and wealth accumulation, but also ease of access in terms of making those investments. This has, at some level, also lowered barriers for people to invest in areas that they would never have accessed earlier, due affordability or the clunky reams of paperwork involved. 

Fintech and user-friendly platforms seamlessly align with this generation’s digital proficiency. Real estate is one area that has always been the bastion of the old-boys’ club, but the ease of access has changed things. “The dematerialised real estate concept has struck a chord with this generation as it meets their preference for easily liquidated investments in increments as small as one square foot. The platform also focuses on sustainability, social impact, and hassle-free co-ownership, making it more appealing for Gen Z,” says Avinash Rao, co-founder of Alt DRX, a fintech platform in the real estate space. Traditionally, home buyers peak between 30-50 years, but Gen Z bucks the trend, emerging as formidable investors. 

Easy access

“Gen Z can quickly execute investment decisions through user-friendly platforms, thus reducing the time and effort required for traditional investment processes that involve paperwork and manual transactions. The entry barrier (both mental and economical) is reduced by transparent and reduced fee structure with lower minimum investment requirements,” explains Dwibedi.

Moreover, the availability of online resources, educational content, and financial literacy programs has empowered Gen Z further. This has increased their financial knowledge which contributes to a willingness to take calculated risks. Social media platforms provide a space for Gen Z to engage with investment communities, follow financial influencers, and share their experiences. This sense of community and sharing of information can influence their investment decisions, adds Dwibedi. 

This is also probably why Gen Z—the oldest of whom are now 26 years old—are best positioned to build wealth, experts say. “With age on their side giving them a truly long-term horizon to get the benefits of compounding, lesser family responsibilities, lower debt, and the ability to control discretionary expenses, Gen Z is well positioned to grow their wealth through a disciplined approach with respect to their spending and investing habits,” says Vishal Dhawan, CEO and founder, Plan Ahead Wealth Advisors, a Mumbai-based investment advisory firm. “A combination of setting budgets and monitoring expenses closely through multiple apps that are now easily available, along with regular investing that happens as soon as their salary is credited through SIPs in mutual funds can work wonders towards helping them become financially independent and even retire early if they would like,” he adds

How can Gen Z get ahead in the wealth accumulation game?

1. Start early

The first rule of being financially stable is to save as much money as possible, as early as possible. "Starting early has a disproportionate advantage even if the amounts are smaller. People hesitate because they think they don't have enough, but there are enough financial tools which allow you to start small," says Dhawan. For instance, if a 20-year-old and a 30-year-old started investing in a SIP in equities simultaneously, earning the same interest, the 20-year-old would end up with a substantially larger amount at retirement. (see table)

2. Separate your needs from your wants
Financial experts suggest you create two accounts—one for expenses and another for savings. Setting up an auto-debit facility is ideal because that money is tucked away even before you get your hands on it. For beginners, the 50-30-20 rule is a sound money management technique that splits your pay cheque into three categories—50 per cent for essentials (rent, groceries, health, transport, utilities, etc.), 30 per cent for discretionary spending or wants (travel, entertainment, eating out, shopping, etc.) and 20 per cent towards savings, which should be set aside no matter what. A budget will also help identify areas that you can cut back on. Invest through SIPs or recurring deposits so that the savings occur immediately.

3. Set up an emergency fund
Sudden expenses emanating from loss of job, a medical emergency, house repairs, or even a death in the family, can set you back financially and even push you into debt. Determine what your monthly expenses are, and start setting aside money which could help you tide over 6-12 months should you have no income. It is also prudent to protect against risk; this could be in the form of health insurance, general insurance, and life insurance. 

4. Put aside a portion of money to upgrade skills
Investing in education and skill development can increase earning potential over time. This can be achieved through online courses, certifications, or vocational training. 

5. Avoid piling up debt
Gen Z should be cautious about accumulating high-interest debt, experts say. Not paying your credit card dues in its entirety costs you more than you can imagine; you could eventually end up paying your credit card company a compounded interest rate of 40-45 per cent per annum. To put things in perspective, if you had ₹1,00,000 outstanding on your credit card and paid only the minimum amount due (about five per cent) each month, you would need approximately 50 years to pay off that debt, presuming you don’t incur any new debt along the way. “Avoid loans and credit card debt, and instead of buy-now-pay-later schemes, move to a save-now-buy-later model,” advises Dhawan. 

6. Avoid risky schemes
Avoid getting carried away about quick money schemes available online which offer substantially higher sums of money at retirement. Do your due diligence. If it’s too good to be true, it’s probably just that.

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