Financial Insights

How to Help New Grads to Financial Success

Millions of college graduates are about to embark on the next stage of their lives, which for many will include their first taste of financial independence. Too little attention is paid, however, to the subject of financial literacy, especially from young adults.
College graduates entering the workforce this month represent the post-millennials or Gen Z (born 1997 – 2012), a group of 68 million and a quarter of the U.S. population. Each generation is different and Gen Zers are characterized as money-driven and ambitious, who love to travel and are prone to anxiety.

The average Gen Zer received their first mobile phone at age 10.3 years. They’ve grown up in a hyper-connected world and, on average, spend three hours a day on their mobile device. They spend a lot of time on social media, consume a tremendous amount of content online, and are used to digital experiences and frictionless transactions.

Less discussed are Gen Z’s financial behaviors and attitudes toward investing, which present typical challenges and also a unique opportunity. They have seen the financial struggles of their parents and millennials (in the aftermath of the 2008 financial crisis). Gen Zers tend to be risk averse, want to avoid debt, and believe that they will not need to rely on banks in the future. Most have never written a check, but they are interested in the stock market and more have invested in the stock market at this age than most previous generations.

Meanwhile, we are all living longer, with an average of 20 healthy years after age 60. This demographic reality is expected to strain U.S. entitlement programs (Social Security and Medicare), which combined with the retreat of private pensions suggests that the retirement safety nets relied on by previous generations may not be as meaningful for Gen Zers by the time they retire.

Adding to the challenge, work itself has changed with the gig economy becoming larger, the growth of 1099 income outpacing W-2 income and therefore less emphasis on structured 401(k) saving and the matching benefits associated with the latter.

All of these dynamics indicate that Gen Z will likely need to be even more proactive about carving out their own financial stability. Importantly, new grads should exercise their time and digital/online advantages and, unlike millennials who tend to be conservative with their investments, get into the market sooner rather than later.
So the gravity of the situation is evident and early intervention is warranted, but how do we, as parents and grandparents and even advisors like me help?

The answer is education and simply broaching the subject as soon as possible. This is where the opportunity lies as Gen Zers have a strong appetite for financial education and, today, they can find it and easily consume it online. Even though less than half of Gen Zers feel confident about their financial literacy, Gen Z may be more financially educated than any previous generation. The most familiar concepts for Gen Zers are how spending and savings work.

In addition to laying out the realities described above, I like to remind recent grads that they need to personally take responsibility to educate themselves on their own finances. With a couple of swipes and key strokes, it doesn’t take long to get going on the concepts, but the deluge of available information can also make it a challenge to sort out priorities.

As for some practical suggestions, you could consider sharing the following with your young adults and recent grads:

Start saving for retirement the moment you have income. Contribute as much, or as little as you can as soon as you can (to your employer’s retirement plan or to a self-employed plan (SEP) or solo 401(k) so you start the behavior pattern and use compounding to your advantage.

Invest in a way that takes into account the 40+ years you have between today and retirement. Now is the time to be systematically aggressive and not conservative. You have time on your side.

Create a budget and stick to it. Learning how to budget now similarly creates a good habit, which should serve you well as you get older and finances become even more complicated.

Adjust your standard of living. If your parents helped pay for college and living expenses, then you may be used to a higher standard of living than you’ll be entitled to when you’re on your own. You won’t be alone so find some roommates or trim your lifestyle now to help you focus on more important financial goals.

Start saving an emergency fund now. As with retirement savings, start this as soon as you have income. You can start by saving enough to cover one month of living expenses, but gradually continue to increase this to cover a longer period of unemployment if such an event occurs.

Pay down student loans. Putting extra money toward your student loans while you can, before you take on other large financial obligations, will be invaluable down the road.

Work two jobs while you’re young and able. You may not earn big bucks at your entry-level day job, but you can still get part-time gigs on nights and weekends to bring in extra income while you have the time and energy.

Carefully consider any real estate purchases. You’re young and mobile and there is no rush to jump in. You don’t want to be bound to a property that you can’t sell or rent in a down market when a new job in another market comes along.

Be strategic in your career choices. It’s easy to be too picky starting out, but you should aim for something that you can stick with and learn from for at least two or three years as opposed to being a job hopper. Most working adults have career paths that are constantly changing, but they don’t change jobs every year.

Be informed. It’s your job to educate yourself on financial matters and to be generally informed about major economic news and trends. Don’t be afraid to ask for help. Most planners, like me, are happy to help. Parents who get this already know. I talk to pending and recent college grads for the families I advise regularly.

After the dust settles, graduation offers a timely opportunity to communicate the personal financial challenges (and the unique opportunity) facing Gen Zers today and, as a result, the importance of building a solid financial foundation and good savings and investing habits that can last a lifetime. It shouldn’t be a surprise as many are already thinking about it. There are plenty of resources available, including your ACM Wealth Advisor, so don’t hesitate to reach out us if we can help. We look forward to speaking with your children and grandchildren.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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