5 Financial Buzzwords for the Gen Z

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According to studies, 6 out of 10 of the population born after 1996 claim that they’ve committed to financial goals for the next 5 years. This is a notable contrast to only 4 out of 10 millennials born between 1981 and 1996, who made similar financial commitments.

Contrary to what millennials and boomers would have you believe, Gen Z is actually quite mindful of their financial status and concerns for the future. They do their research and make investments wisely to ensure a financially secure future.

Financial awareness among young people is growing stronger than ever, and there are certain buzzwords that every Gen Z ought to be familiar with. Let’s dive into some of these buzzwords to help you get a better understanding of managing personal finances.

 Payday Loans

A payday loan, also known as a short-term loan, is a quick way to get cash for urgent financial needs. These loans usually range from £500 to £1500 and have a high interest rate.

Due to these high interest rates, payday loans need to be handled with caution. If you fail to repay the debt on your next payday, there’s a risk of falling into a debt trap.

If you have to take out a payday loan, ensure that you do so from a reputable payday loan company and are more than capable of making the required repayment on time.

 Retirement Accounts

Your retirement years are supposed to be the years where you sit back and relax after working hard your entire career. While savings are always a must-have after you retire to ensure a secure life, there’s no harm in investing in retirement accounts.

A retirement account, such as a State Pension or an Individual Savings Account (ISA) is a tax-efficient savings plan to assist you in having a safe financial cushion to fall back on in your retirement. The earlier you start investing in these plans, the more benefits you’ll reap once you reach your later years.

 Credit Score

A credit score is a representation of how well you manage your finances, calculated based on your payment history, outstanding debt, length of credit history, and general credit usage. Oftentimes, you can lose track of how frequently you’ve been using your credit card, which can significantly impact your credit score.

A good credit score signals that you manage your finances responsibly and falls between 721 and 880. On the other hand, any score below 700 is considered poor and hints at the opposite of a good credit score.

With a good credit score, it’ll become easier for you to secure loans or credit cards at favourable interest rates. However, a bad credit score will either result in higher interest rates on loans or outright restrictions from applying for credit.

To prevent yourself from falling into the bad credit score category, make sure that you regularly monitor your finances and remain proactive in case of any inconsistencies.

 Emergency Fund

Let’s assume that Tim is a happily married man with kids and a stable job, living his best life. Unfortunately, he unexpectedly loses his job due to layoffs and suddenly there are outstanding medical bills, utility costs, and other unforeseen expenses piling up. Tim is now forced to either take out a payday loan or borrow money personally from friends or family. What was Tim’s mistake? Not having an emergency fund.

Unexpected expenses such as medical bills, car repairs, or job loss can happen to anyone at any time, and that’s why having an emergency fund is crucial. It’s a savings account specifically set aside for such emergencies to help you avoid relying on loans or credits when things go wrong.

It is ideal to have up to 3 to 6 months’ worth of living expenses saved up to give you the breathing room that you require at such times. However, any investment in an emergency fund is a good investment, so you can start off small and gradually increase the investment as your income grows.

 Buy Now, Pay Later (BNPL)

Similar to EMI, BNPL is a scheme that allows you to buy a product and avoid making the full payment upfront. It allows you to instead make the payment over time and split the cost into smaller instalments.

The difference between EMI and BNPL is that EMI is typically used for bigger payments and has a repayment period of between 6 to 12 or 24 months, whereas BNPL is generally used for smaller purchases and has a repayment period of a few weeks or several months. Additionally, EMI always includes interest rates, whereas many BNPL services offer interest-free payments.

BNPL services are becoming an increasingly popular way to make purchases and worry about their payment later, but it’s important to ensure that you have a clear plan for repaying the debt on time, as failing to do so could negatively impact your credit score.

Conclusion

Financial literacy is more important than ever, especially as the younger generation makes their way through a world filled with various options to manage their money. By staying informed about these financial buzzwords, you’ll be better equipped to manage your finances, achieve your goals, and set yourself up for a financially secure future.