Young adults are not typically known for being the most financially responsible individuals. Yet, financial planning is more critical than ever for a generation that is struggling with high inflation and debt and tends to prioritize spending over saving.

If your advice is brushed aside, try putting yourself in your child's position and seeing the current economic environment through their eyes. Professional guidance can also help break through money management barriers and prepare a young adult for a lifetime of financial success.

Tuition Costs Have Never Been Higher

Eighty-three percent of Generation Z (those born between 1997 and 2010) say that a college education is “very important” or “fairly important” today.^[1] However, a growing number of Zoomers are opting to skip college and enter the job market, mainly due to concerns about affordability.^[2]

College costs have been trending upward for the last two decades, currently averaging nearly $110,000 for four years at an in-state public institution and $234,512 for four years at a private university.^[3]

High school seniors who pursue higher education should make sure they understand what they are signing up for when they take out student loans. Private student loan interest rates are primarily based on creditworthiness, so it is essential to establish a good credit score before applying.

Student loan debt is notoriously difficult to discharge, and loan rates are typically fixed for the life of the loan. However, there are ways to manage student debts, such as interest rate discounts for automatic payment withdrawals, paying extra principal, and enrolling in federal programs, including the new Saving on a Valuable Education (SAVE) plan.

Paychecks Are Not Going Far

While more recent high school graduates are opting not to attend college and instead enter the workforce, this choice presents its financial challenges.

On paper, Gen Z workers are earning more than some in the older generations, but much of this comes from freelancing and rideshare jobs.^[4]

Historically high inflation is eating into Gen Z's earnings. Rising prices have disproportionately impacted Gen Z, who are spending more on essentials than preceding generations.

Gen Z has contended with 32 percent inflation over the past decade. Compared with young people 10 years ago, Gen Z is paying 31 percent more for housing, twice as much for car insurance, and 46 percent more for health insurance.^[5] This can cause them to feel like they are starting further behind financially than their parents and grandparents were at their age and cannot afford the American Dream.^[6]

Inflation bears a significant portion of the blame for why Gen Z is living on a financial precipice. However, members of Gen Z may share some of the blame. Today's young people have a much “softer” approach to investing and personal finance than previous generations. This approach is more about personal growth and mental well-being in the present moment than it is about saving for an uncertain future.

Three in four Gen Zers say the current economy makes them hesitate to set long-term financial goals.^[7] Then again, this could be a “chicken-and-egg” scenario.

Credit Cards Are Not the Answer to Inflation

In response to higher inflation and its corollary, less disposable income, Gen Z is accumulating credit card debt at an unprecedented rate.

Eighty-four percent of Gen Zers are using credit cards, according to research from TransUnion.^[8] And roughly one in seven have maxed out their cards—more than any other generation.^[9] These trends are particularly worrisome because credit card interest is at an all-time high of around 22 percent.

However, there are innovative ways to use cards to build credit and earn rewards for an upcoming trip or purchase. Having a balance available in an emergency can also serve as a temporary self-funded loan. However, to fully benefit from these advantages, young adults must understand the potential consequences of using a credit card.

More Ways to Invest Than Ever

Younger investors are less confident that they can achieve above-average returns solely with stocks and bonds. Thus, instead of engaging in traditional investment strategies, Gen Z shows a greater preference for alternative investments such as crypto, private equity, direct investments in companies, socially responsible investing, and automated or robo-advisor investing.^[10]

When considering an investment, it is essential that young adults have a well-defined strategy in place. A long-term investment strategy that involves buying and holding specific assets is one of the most effective hedges against inflation.^[11] Passive investing almost always beats active investing, even among money managers.^[12]

Give Your Teen the Gift of Financial Literacy

The “real world” is often the crucible in which money lessons are learned the hard way. That does not mean a young adult should head off to college or enter the workforce without a basic understanding of personal finance. Help your soon-to-be high school graduate establish—and meet—their financial goals by scheduling a consultation with an advisor.

Contact Hartmann Law Today

If you have questions about young adult planning, please get in touch with our office to speak with an estate planning attorney.

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