When it comes to money, young people tend to make financial mistakes compared to Millennials, who have already gone through the early phases of struggling with money management. Dear Gen Zs, here are some helpful financial lessons you can learn from Millennials so you won't make the same mistakes as they did.
When you’re young, life feels pretty great, right? You’re full of energy, your health is at its peak, there’s not a whole lot of commitments – the world is essentially your oyster!
But it’s also during your youth that you make many, many mistakes, including financial mistakes. The saying, “youth is wasted on the young,” exists for a good reason. Sometimes young people lack the perspective, experience and, generally wisdom, to appreciate all the advantages of youth, and are more likely to take them for granted.
As Millennials - those aged 24 to 39 this year or were born between 1981 to 1996 - enter their prime years, and hand over the “youth reins” to Generation Zs, we decided to highlight some of the common money mistakes and, of course, money lessons, that Gen Z’s should be aware of, with hopes that they won’t repeat the same mistakes.
And if you’re wondering, anyone born between 1997 and 2015, or currently aged between 5 to 23-years-old, are considered Gen Z’s!
1. Thinking that it’s too early to start investing
It’s never too late to start investing for a brighter and better future. In fact, the earlier you start investing, the greater the savings you can build since you have a longer time horizon to work with.
Despite being the more technological-savvy and advanced age group, millennials tend to be more conservative when it comes to investing, compared to their older Gen X and Baby Boomer counterparts.
Though we are not entirely sure why, it could boil down to the fact that they are the age group that have witnessed the largest market meltdown in decades during their formative years - think of it, they are the generation that has to deal with the largest societal income gap in decades.
But Gen Z’s shouldn’t make the same mistakes.
Thanks to technology, investing has never been more accessible, convenient and affordable to the masses. If you need some leads on where to start, we recommend you take some time to read this article on robo-advisors that we wrote. The platform is a great way to start investing on the cheap, as you can start investing with as little as RM10 (depending on which platform you are using). This is a stark contrast to the more traditional mutual funds or unit trust that have a higher entry fee.
By the way, it’s not too late to start investing for your retirement either, and waiting too long to start saving for retirement could backfire and come back to haunt you in the future.
Always set aside money for your savings before finalising commitments and expenses
2. Not saving before spending
It always feels nice to see that big fat paycheck land in your account at the end of every month. But a mistake that millennials often make is forgetting to allocate some of those funds to their savings account.
About 40% of millenials in Malaysia spend beyond their means, according to a report by the World Bank titled "Making Ends Meet,” which cited findings from the 'Finance Matters: Understanding Gen Y' report by the Asian Institute of Finance.
The report also revealed that millennials mostly spent on necessity items such as food and utilities and that impulse buying behaviour is due to “easy access to personal loans and credit card financing, the want for instant gratification, and seamless online purchasing.”
Of course, we believe that credit cards and personal loans can do more good for you, when used responsibly and correctly. Therefore, if you are going to pick up a credit card or personal loan, we highly encourage you to read and equip yourself with the right knowledge beforehand.
It is recommended that you send at least 20% of your paycheck straight into your savings account at the end of every month. This belief is based on the popular and widely cited 50/30/20 rule, where you allocate 50% of your budget for essentials like rent and food, 30% for discretionary spending, and at least 20% for savings.
3. Not considering the financial consequences of a student loan
The desire to attend a prestigious university or to earn a particular degree, has forced many to justify the high cost and expenses of an education. And to be very honest, there’s no right or wrong move, as long as it’s justifiable and the ROI is clear for you.
But the problem arises when too many people sign up for student debt without even giving a thought on the financial commitment that they are getting into in the form of monthly debt payments as well as the duration it takes to complete those payments versus their expected incomes.
The National Higher Education Fund Corp’s (PTPTN) revealed that some RM6.4 billion worth of non-performing loans in 2018 were attributable to one million former tertiary students - the total loan currently stands at RM40 billion. So it’s clear that a lot of Malaysians still need to pay up their student loans.
So before taking up that hefty loan to get a master’s degree, or a doctorate, you should think about whether that new degree will generate enough additional earnings to justify the expense.
If you’ve finished all your loan payments, then congratulations! If not, it’s time you closely examine it and see if you are entitled to any temporary suspension of loan payments, in the form of halted interest payments or relaxed terms and restrictions to help you during this difficult period. It’s also good to reassess your payment timeline.
4. Not paying your credit card balance on time
Credit cards do more good than harm when you use them correctly!
At least two Millennials have told the writer that when they were younger, one of the biggest mistakes they made was taking on too much debt, in the form of credit cards.
But don’t get us wrong - the credit cards itself are not the problem because using your credit card regularly and responsibly is actually one of the most effective ways to build your credit. And a good credit is important because it can help determine whether you get approved for a mortgage, auto loan and essentially gives you better negotiating power because you're fiscally responsible.
But on the other end, unfortunately, are those who struggle to pay off their credit card debt, as evident by that World Bank report we cited earlier.
When it comes to credit cards, the most important rules are to pay your dues promptly every month, to keep your credit utilisation below 30%, and to spend within your credit limit.
A good way to start building on your savings is to try to save as much money as you can into your bank account during the first three to six months of your career. That way, it would be easier to pay any credit card balance that you have at the end of every month.
5. Not having an emergency fund
Got an extra RM1000 this month? Drop that into your emergency fund! If there’s one lesson we can take away from COVID-19, is to always be prepared for the future because we never quite know what would happen if another neo-apocalyptic event happens. Instead of predicting the next big crisis, better to prepare for it.
What the writer has found is that a lot of Millennials often mistake savings for an emergency fund - they are both separate things!
An emergency fund should consist of six months worth of income - just in case you get retrenched or lose your job. Your savings, on the other hand, should be untouched money that is meant for your long term goals!
6. Not being proactive about your health
One of the biggest gifts that you will ever get when you’re young is the gift of health.
Many, across the globe, spend thousands just to regain it either through health regiments, or surgery or through medication. And you know what? That’s exactly the price you need to pay for a healthy body.
Of course, not everyone is blessed with the same degree of health after birth, many lucked out, some others have to live with pre-existing conditions until their last breath. But the point is, take care of your body before it’s too late.
It may sound boring, but being proactive about your health will not only let you live longer, but also prevent high healthcare costs in the future.
You can start simply by maintaining a healthy diet and exercising often. Get routine health screenings if you can afford it, as these tests can help you identify potential issues early before they grow unexpectedly into something more serious.
“You have only one mind and one body for the rest of your life. If you aren’t taking care of them when you’re young, it’s like leaving that car out in hailstorms and letting rust eat away at it,” renowned investor Warren Buffet once said.
7. Not thinking about the financial consequences of having a lavish wedding
Okay, this might get some heads turning, but hear us out. You should be able to decide how much you would like to spend on your big, special day without someone criticising your choice.
But it’s super critical that you think of the long-term effects on your savings and financial circumstances. For instance, don’t get a loan to get married and definitely don’t go into huge debt just because you wanted to get married at a certain age or time.
We’re going to be very honest - getting married in today’s day and age is expensive. Anything and everything under the marriage banner comes with a price, be it the outfit, the food, the cake, photographers, venues, coordinators etc.
Don’t succumb to the pressure set by others, like your parents, relatives, friends or even social media. Instead, make sure you properly plan out every aspect of your wedding day so that you can both be happily married without having to think about the large financial debt you got yourself into.
In fact, some would even argue that it’s more important to save up for the life after marriage rather than the marriage itself.
Dear Gen Zs, we hope you took note!
We hope that when your time comes to finally cross the line of adulthood (or maybe you already have!), your journey will be much smoother, less stressful, and more memorable than ours.
Undeniably, being an adult is not easy as it comes with so many new responsibilities and commitments, but there’s value to each and every one of those life situations, and all of the experience will make you a stronger and more resilient person.
We hope you found this article insightful and helpful!