Seven financial advice for Generation Z from a Gen Xer

Despite having the greatest economy in the world, Americans still have a shockingly low level of financial literacy, including investing, saving, and budgeting. According to a 2022 Yahoo! Finance research, America doesn’t rank in the top 10 nations in terms of the financial knowledge of its population. Although some schools teach personal finance, many states do not mandate it, unlike, for example, geography, which must.

For Gen Z, this is an issue. The worst-case scenario is that you’ll have to Google Idaho’s capital if you can’t recall it. However, if you continue to lack financial literacy, you may suffer a more terrible outcome such as a lifetime of debt or even homelessness.

Getting into the habit of reading a few solid personal finance books each year is a smart approach to protect yourself. Which, nevertheless, are worthwhile? After reading hundreds of personal finance books, I discovered that the excellent ones are helpful because they all offer the same fundamental advice. I started reading personal finance books in my mid-20s, but I wish I had begun a decade earlier. Instead of educating you how to manage your money responsibly, the dishonest ones just try to sell you a get-rich-quick plan.

Therefore, the following are the seven most important pieces of advice I learned from reading these excellent personal finance books — information I wish someone had summarized for me when I was younger. (I’ve included my favorite sources at the bottom if you’d want to read them yourself, which I strongly encourage.)

1. Making a lot of money doesn’t guarantee financial security by default

It goes without saying that having more money makes your life more secure. Note that I stated “can” rather than “will.” People I know who earn half a million dollars year have confided in me that they’re never more than two paychecks from becoming bankrupt. To put it another way, these wealthy individuals continuously worry about their financial situation because they know that if they lost their jobs abruptly, they would be in a terrible situation. On the other hand, I am aware of many individuals earning $40,000 year who could endure unemployment for a year or longer before their lack of money became an issue.

Whether you live within your means makes a difference. You might be able to afford that Tesla if you earn $100,000 a year, but would you be able to make payments if you lost your job overnight? Making a six-figure salary is not as important to financial stability as how you handle the money you have.

Ronald Read is a person I like to use as an illustration of this. He spent his whole life working as a janitor and gas station attendant, driving secondhand automobiles, and fixing his own soiled clothes. But when he passed away at the age of 92, the world was astounded to learn that he had amassed a $8 million fortune via wise investment, of which he had given more than half to a local hospital and library. People who are frequently considered to be poor may really be richer than others who flaunt their high-paying jobs. It just comes down to how you use the resources you have.

2. Avoid mistakenly paying $5,000 for a $2 frisbee

I once read one of the finest personal finance anecdotes that warned against getting seduced by credit card offers. It may have been in a personal finance book or an early post on the web, but I don’t recall where I first read it. It went something like this: A college student stumbled upon a booth that had been put up by a credit card firm as he was crossing campus on his way to meet up with some pals. The kid was informed that he would instantly receive a free Frisbee if he applied for a guaranteed credit card. He accepted since he believed playing Frisbee with his mates that day would be enjoyable.

The Frisbee was only used once, but he often used the card, which had a high interest rate, to purchase things he liked but didn’t need. Years later, he had forked over more than $5,000 in interest and fees to the credit card business, all because the issuer had given him a low-cost $2 piece of plastic that he was no longer even in possession of.

The takeaway from this story is to not be duped into accepting a high-interest credit card offer only because of a free present (whether it be Frisbees or “points”) that is included. Long-term costs will much exceed those of the instantaneous incentives. Only use high-interest credit cards to pay for basics if you have no other way to do so.

3. Pay off your debt with a high interest rate first, then pay yourself, and then then pay Apple

September is here. You recently received a salary for $2,000, but Apple just released a new iPhone that costs $1,000. How do you behave?

No matter how wonderful the new phone is, people with sound financial practices won’t give Apple the initial payment. They will utilize the remaining funds to settle debts and other expenses after covering basic costs (such as food, housing, and medical expenses). If they have any extra money after taxes, they’ll invest it or put it in their savings account. They won’t spend a thousand dollars on a new iPhone until that nest fund feels has grown sufficiently large.

4. Invest, but resist letting the market consume your ideas

The earlier in life you start investing, the more probable it is that your profits will improve. This is due to the fact that traditionally, the U.S. stock markets have trended higher over time rather than downward. Yes, there are terrible years, and previous success does not guarantee future success, but given enough time, the valuations of many successful businesses have historically increased. Your financial stability and mental well-being will rise in value along with your investments.

However, that “peace of mind” is not something that comes naturally, especially for new investors. This is as a result of the fact that they have a short-term perspective on their investments and constantly examine the values of their equities. The short term can also be difficult for any stock. Your nascent investment in even reputable firms might decrease if there is a slump in a particular sector or a major world catastrophe (such as a pandemic or war) that has an impact on the markets. This may cause many young investors to have sleepless nights. Older investors, however, are aware that temporary declines are normal.

Don’t pay careful attention to the market, famed investor Warren Buffet advised investors, according to a CNBC interview. “Investing is profitable when you own reputable businesses for an extended length of time. People should use stocks in that way.

5. Don’t use others’ investment advice, perform your own research

There is always a chance that you might lose every penny you invest when you invest. Our personal and financial objectives, risk tolerance, and risk appetite vary from person to person and evolve throughout the course of our lives. These risks, tolerances, and objectives ought to serve as a guide when deciding whether investments would be a suitable fit for you.

Don’t rely only on a friend’s or a journalist’s hot stock tip or investment advice since only you know what’s best for you. For some people, a good investment decision or strategy may not be wise for you. Take the time to research the businesses and the markets they compete in before you buy—or sell—any stock or implement any investing strategies since you are accountable for your money and investments. Furthermore, beware of anyone who claims that a certain stock is a “guaranteed thing“—they are lying to you. Do your own research and make educated investment decisions based on your own position and goals—not those of anybody else. In the world of investing, there are no so-called “sure things,” and previous performance never ensures future success.

6. Avoid the Bandwagon

Cryptocurrency, NFTs, and oceanfront property: Some individuals have earned fortunes off of these goods. However, just because a certain asset class is popular or has been for a while doesn’t guarantee that it will stay that way.

When the taxi driver started pitching her on the coin he and his friend had just devised in December 2021, a friend of mine first got the impression that cryptocurrencies may have peaked. Bandwagons may indicate a bubble. Do your research once again. Above all, keep in mind the tulips. Carefully consider if an asset’s popularity indicates that it may have already hit its peak.

7. Finally, don’t look down on others or be overly proud of your accomplishments

Do you remember the previous year’s stock market? Great. Keep it to yourself for now. Nobody else is interested, and whatever profits you made likely had more to do with blind luck than with your investment abilities. Speaking haughtily about your financial success is not just tacky but also conceited. And haughty individuals occasionally fail to perceive what’s in front of them, which can cause them to fall victim to hot-hand fallacies, in which they presume that what has already occurred (namely, successfully raising their money) will continue to occur since they “can’t lose.”

Don’t ever judge someone negatively because they don’t invest or don’t have a sizable nest egg put up. Not everyone has the luxury of having extra cash each month to save or invest. Many Americans are just working themselves to death to make ends meet in order to pay for essentials like food, rent, education, and exorbitant healthcare expenditures. They are not unable to save or invest because they are lazy, blind, or ignorant; rather, social and economic realities and disparities hinder them from doing so. It is understandable why so many Americans’ financial futures are so dismal; this holds true for both my generation and Gen Z in particular.

BOOKS ON PERSONAL FINANCE I RECOMMEND

Never, ever regard any one book on personal economics as the word of God. Each of them has a unique perspective on personal finance, and none of them will be the best option for everyone at every stage of life. However, as I’ve already mentioned, the sound ones all include the same fundamental bits of guidance, some of which are described above.

The personal finance books by David Bach, Peter Lynch, and Thomas Stanley and William Danko that I (and others!) believe have endured the test of time are The Automatic Millionaire and The Millionaire Next Door. All offer helpful introductions to saving and investing, particularly for those who are just starting started.