June 30, 2023 – About four million people will graduate from college this year* and begin establishing careers. For graduates, their relationship with money can change significantly once they have a job and pay their own bills. For families, a new set of worries emerge. Can the kids make it on their own?
Below are ways to help families and graduates navigate this moment and build a financial foundation that will last a lifetime.
Stats to Understand Generation Z Graduates
- Gen Z (born after 1996) is the most racially and ethnically diverse generation in the U.S. and is on track to be the most well-educated one, too.1
- They are digital natives who tend to have a strong sense of social responsibility2, are highly collaborative and social, value flexibility, and resist hierarchical leadership.3
- Gen Z is skeptical of financial institutions, which causes them to be less likely to invest and can make it challenging for advisors to reach them.
- They’re also likely to live longer than their parents, with an average of nearly 20 healthy years after age 60, according to the World Health Organization.4 Longer life spans, combined with diminishing Social Security reserves, could put a strain on their financial stability.
- The nature of work is also changing. In 2021, the number of independent workers jumped 34% to 51.1 million.5 Many of these workers do not have any kind of retirement plan and may not be saving at all.6
- Gen Z’s uncertainty about the future (especially their financial future) has increased since the pandemic began and continues through volatile times.
Tips and Ideas on How to Start the Conversation
Graduation is a timely opportunity to arm our young adults with some tips to help them understand the importance of building a solid financial foundation and good savings and investing habits that will last a lifetime.
Start a “Financial Resource Kit” for the graduate that will be used to provide tips on how to talk about topics such as:
- Banking – Understand how to reconcile their accounts, set up auto-pay to pay bills, and download the bank’s app on their mobile device
- Record Keeping – Track all bills, deposits, tax receipts, large purchases, and savings accounts.
- Apps and online tools – In addition to the bank’s app, find helpful apps and online tools to understand how loans/credit cards work, the power of investing over time, and savings vehicles at work like a 401(k).
- Credit – Understand how credit works, how to build good credit, and how to track it.
- Budgeting Best Practices – Understand how much money is coming in every month (e.g., salary) and the monthly expenses (e.g., rent, food).
Gifts to Consider Giving That Helps Establish Healthy Financial Habits
Instead of giving cash as a graduation gift, think beyond the one-time gift and consider gifts that help establish healthy financial habits. Some ideas include:
- Matching savings contributions – Opening a savings account can open the door to a good savings habit. Families can make the initial deposit and by matching a portion of their graduate’s contributions, they can incentivize regular contributions throughout the year.
- Fund or match contributions to an IRA – Opening a tax-advantaged Individual Retirement Account (IRA) could be the right move if the graduate is freelancing or ineligible for a 401(k) through their employer. Roth IRAs, funded with after-tax dollars, offer tax-deferred growth and tax-free withdrawals and are a practical option for those with smaller incomes.
- Give stocks with youth appeal – Gifting stocks that appeal to young graduates might pique their interest in investing. Entertainment, technology, or socially responsible investments are a few popular options.
- Gift appreciated stocks – Gifting appreciated stocks helps build the graduate’s assets while reducing your capital gains exposure.
Disclosures
* Melanie Hanson, “College Graduation Statistics,” Education Data Initiative, June 12, 2022, https://educationdata.org/number-of-college-graduates/.1. Kim Parker and Ruth Igielnik, “On the Cusp of Adulthood and Facing an Uncertain Future: What We Know About Gen Z So Far,” Pew Research Center, May 14, 2020, https://www.pewresearch.org/social-trends/2020/05/14/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far-2/.
2. Annie E. Casey Foundation, “Social Issues That Matter to Generation Z,” February 14, 2021, https://www.aecf.org/blog/generation-z-social-issues.
3. Melissa De Witte, “Gen Z are not ‘coddled.’ They are highly collaborative, self-reliant and pragmatic, according to new Stanford-affiliated research,” January 3, 2022, https://news.stanford.edu/2022/01/03/know-gen-z/.
4. Mark Stibich, PhD, “Healthy Life Expectancy and How It’s Calculated”, Verywell Health, October 3, 2020, https://www.verywellhealth.com/understanding-healthy-life-expectancy-2223919.
5. MBO Partners, “The Great Realization: 11th Annual State of Independence,” December 2021, https://info.mbopartners.com/rs/mbo/images/MBO_2021_State_of_Independence_Research_Report.pdf.
6. Allison Shelton, “What We Know—and Don’t Know—About Independent Workers and Retirement Savings,” June 28, 2019, https://www.pewtrusts.org/en/research-and-analysis/articles/2019/06/28/what-we-know-and-dont-know-about-independent-workers-and-retirement-savings.
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