Launching Gen Z: Smart Financial Moves for New Graduates

05-15-2024

cindylundbergverdecm-com|05-15-2024

This year, approximately four million individuals will graduate from college,1 marking a significant transition into the workforce and a new relationship with financial responsibility. As they start earning and managing their own finances, their families may be concerned about their financial viability. Will they make it on their own? Have we taught them enough about financial responsibility? The advisors at Verde Capital Management are uniquely positioned to guide both graduates and their families, helping to establish a robust financial foundation for a lifetime.

 

POV: Gen Z in the Workplace

Born post-1996, Gen Z is the most racially and ethnically diverse generation in U.S. history, and it’s likely to be the most well-educated.2 Known as digital natives, they are recognized for their strong social responsibility,3 collaborative nature, preference for flexible work environments, and resistance to traditional hierarchical structures.4

 

Trust Issues

Gen Z’s skepticism towards financial institutions might deter them from investing. A Morning Consult survey in 2020 revealed that only 32% of Gen Z trusts Wall Street, only slightly more than Hollywood at 28%.5 With life expectancies increasing (projected to live 20 more healthy years after they turn 606) financial stability could be challenging, especially with potential reductions in Social Security. Because of this, we think financial planning becomes more important than ever.

 

Work and Money frfr

The independent workforce expanded by 34% in 2021, reaching 51.1 million people.7 Many of these workers lack retirement plans and may not be saving enough if at all.8 As gig economy jobs increase, proactive financial planning is really important.

The uncertainty surrounding Gen Z’s financial future has been exacerbated by the pandemic and ongoing economic volatility. Is this generation prepared for the upcoming financial challenges?

 

Gifts? Say less

A 2022 survey by the National Retail Federation revealed that over half of respondents intend to give cash as a graduation gift.9 While cash is always appreciated, it’s a perfect opportunity to introduce gifts that can foster long-term financial well-being.

Consider these thoughtful alternatives:

  • Match Savings Contributions: Starting with a savings account could spark a lifelong savings habit. By matching a portion of your grad’s savings, families can encourage regular contributions. In 2024, up to $18,000 can be given without triggering the gift tax, or $36,000 for couples.10
  • Fund an IRA Contribution: For graduates working freelance or those without access to a 401(k), contributing to a tax-advantaged Individual Retirement Account (IRA), like a Roth IRA, can be beneficial. Roth IRAs support tax-free growth and withdrawals, making them suitable for those starting out with modest incomes.
  • Gift Stocks with Youth Appeal: Gifting stocks in sectors like entertainment, technology, or sustainable ventures can engage young graduates in investing, making it both an educational and financially beneficial gift.
  • Gift Appreciated Stocks: This strategy not only aids in building the graduate’s portfolio but also offers tax advantages for your clients, setting the stage for discussions on generational tax planning.

 

We are here to help and support grads and families navigate through these milestones so that this young generation can be as financially prepared as possible. Reach out to us for great financial tools and for more information!

 

Sources:

  1. Melanie Hanson, “College Graduation Statistics,” Education Data Initiative, June 12, 2022, https://educationdata.org/number-of-college-graduates/.
  2. 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/.
  3. Annie E. Casey Foundation, “Social Issues That Matter to Generation Z,” February 14, 2021, https://www.aecf.org/blog/generation-z-social-issues.
  4. 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/.
  5. Morning Consult, “How 2020 is Impacting Gen Z’s Worldview,” June 2020, https://morningconsult.com/form/gen-z-worldview-tracker/.
  6. 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.
  7. 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.
  8. 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.
  9. National Retail Federation, “Graduation Season Data Center,” 2022, https://nrf.com/topics/holiday-and-seasonal-trends/graduation/graduation-season-data-center.
  10. S. Internal Revenue Service, “What’s New – Estate and Gift Tax,” February 21, 2023, https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax.

 

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