Like every generation, most Gen Z individuals too have had to deal with concepts or ideas of parents that seemed too dated or old-fashioned. For everyone, parents are after all a generation or two away. Especially when it comes to finances, the advice coming from fathers sounds too limiting to the younger generation looking for thrill even in investments.
The fathers and parents of the Gen Z generation are mostly individuals who have been through the dotcom bust of 2000, the financial crisis of 2008 and most recently the one experienced during Covid in 2020. Many of these dads believe in long-term savings, saving for a rainy day, planning for retirement, and the importance of consistency and long-term compounding, due to the catastrophic moments in the history of financial markets.
“While Gen Z people have access to everything at the click of a button, they don’t realise the need for financial advice assuming everything is at their fingertips. But they also don’t realise that there is a lot of useless things on the internet which needs to be filtered for value. The idea of investing for the long term or for a rainy day does not sound effective because they believe in the ‘now’ and living for the moment. This could hurt their long-term wealth accumulation needs and savings,” says Dilshad Billmoria, managing director and principal officer of Dilzer Consultants, a Sebi-registered investment advisor.
Hence, it is sometimes prudent to count on your fathers for some sound advice, especially when it comes to finances. Here are some evergreen personal finance lessons that Gen Z can learn from their fathers:
Envelope Budgeting: The previous generations were not really tech-savvy but they had a quality that is valued in personal finance—disciple on sticking to budgets. They did this without having the luxury of having spreadsheets or mobile apps for maintaining the family’s budget. The “envelope budgeting system” was good enough. They used to portion out the monthly income towards different spending categories. To pay for something, they used money only from the corresponding envelope. In this process, they were able to maintain their personal financial discipline and avoid exhausting all their cash or salary before month-end.
“Gen Z can keep the essence of the process and resort to modern-day apps or spreadsheets to stick to their budget. This can help them to replace the habit of frequent debit and credit card swiping. The envelope system can help new budgeters and impulsive spenders. It lets you set goals and gauge how much you spend, save and invest for your future. We recommend this method to people who want to take charge of their finances in a hands-on way,” says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.
Becoming Future-Oriented: In the name of “living in the present”, the majority of Gen Z are inclined towards overspending to keep up with peers and ongoing trends. There are “must-haves” (needs) and then there are “nice-to-haves” (wants).
“Unfortunately, the majority of Gen Z are failing to differentiate between the two and are falling prey to instant gratification. A classic example is the emergence of ‘Buy Now Pay Later’ schemes. Previous generations understood the importance of living within their means. There’s no substitute to having patience, saving and then spending on your ‘nice-to-haves’. Gen Z needs to value the habit of being future-oriented on a consistent basis and resist the temptation of instant pleasure,” says Sen.
Choosing Suitable Investments: In the Gen Z’s parents’ generation, too, people would take risks to earn higher returns. Earlier the interest rates from fixed income instruments were much higher. They would simply put money into them to earn double-digit fixed returns. There was no need for other avenues for growth. While in their children’s generation, you would need to carefully invest just to be able to beat inflation.
Moreover, with several choices in hand, Gen Z needs to carefully evaluate and select products that align with their long-term investment goals. They also need to understand that while it is absolutely necessary to invest in equity-linked investments for long-term wealth generation, they should ideally consult a financial advisor to be able to choose the right investment. Also, it is important for them to diversify their assets and not to put all their eggs in one basket.
Using Credit Cards Intelligently: A Gen Z person’s father would have used his credit card with a lot of discretion, perhaps because credit cards were new at the time. Some of them may have even learnt a lesson earlier on to become careful. The Gen Z can use their experience to understand how to use credit cards optimally.
Armed with fancy credit cards, they should not be under the illusion that their affordability and purchasing power is very high. Once they get into a credit card EMI, they have to pay a lot of extra money for things they are buying through the card. When they don’t know their boundaries, they can get into a credit card trap, that their fathers would have always warned them about.
