Gen Z Personal Finance

Welcome back! This time, our McKinsey Global Publishing fellow Elissa Bandler explores the topic of Gen Z and personal finance.

Back in March, this newsletter looked at Gen Z’s spending habits. But that was only one small glimpse into Z-babies’ finances. The bird’s-eye view looks more like this (atleast for Gen Zers in the US): 

• median annual salary (ages 20 to 24): $38,325
• average credit card debt (ages 18 to 25): $2,282
• average student loan debt (ages 20 to 25): $20,900 
• average savings balance (under age 35): $11,250
• average monthly income spent on housing (under age 25): 37.3%

It doesn’t take a math PhD to calculate the effect those figures have on Gen Zers. According to McKinsey research, almost a quarter of Gen Z respondents don’t expect to retire, and point to a high cost of living and high debt as reasons why. Low salary plus high debt and high cost of living equals pain (or, at least, a bit of financial nihilism).

Out of the mire, thousands of digital creators have taken to the internet to help Gen Zers learn how to manage their money. “FinTok” is an area of TikTok where people can post content about personal finance. The #fintok hashtag has amassed more than four billion views according to the platform’s own data. And “finfluencers,” the content creators who give tips on everything from investment ideas to budgeting methods, have millions of loyal followers. Some finfluencers have even managed to parlay their social media success into personal-finance book deals. Ka-ching. 

You’d think that all the content about saving, investing, and paying down debt would be great for Gen Zers. And a lot of it is: more than half of Gen Zers have some kind of investment; Gen Zers contributed more to their 401(k)s last quarter than other generations did; and Gen Z is the generation most motivated by the pandemic to improve their financial literacy.  

But for as many finfluencers who make videos about tried-and-true budgeting rules (50-30-20, baby!) or underused tax advantages, there are just as many who peddle predatory multilevel marketing schemes or are paid to promote financial products that may not work for everyone. 

There could be an opportunity here for companies to create trusted personal-finance content, both on social media and elsewhere. Outside of FinTok, companies can reach Gen Zers on fintech platforms: Gen Z accounts for the biggest share of fintech users, and 29 percent of those Gen Zers using fintech have more than one account, according to McKinsey Global Institute director Olivia White and coauthors. 

The public sector could also play a role in helping young people to better understand personal finance. Recognizing the need to teach young people financial literacy, schools across America have started to institute personal-finance courses in high school. (This is great news for Gen Alpha—and beyond.) One school in San Francisco has helped students create bank accounts, giving students enough money to practice basic investing and budgeting.

TL;DR? Then let’s leave it at this: finding your financial footing might start with a dive into FinTok, but it shouldn’t end there.

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— Edited by Alexandra Mondalek, editor, New York