“Financial Planning for Gen Z: Are They Taking the Wheel?”

Gen Z should prioritize paying off high-interest debts, especially student loans, while steering clear of unnecessary credit card debt. Developing a structured repayment plan can accelerate their journey to financial freedom.

Gen Z, defined as those born between 1997 and 2012, makes up 30% of India’s population, a significant economic force compared to 14% in Japan and 25% in the US. With India’s rapid digital transformation, this generation is often at the forefront of change. But are they taking charge of their financial future?

A financial planning survey of 1,536 Gen Z individuals revealed some intriguing insights into their management of investments, expenses, debts, credit cards, and insurance.

Among those surveyed, 63% reside in major cities, and over half (53%) earn between Rs 5 lakh and Rs 15 lakh.

Diverse Investment Portfolio: Our data shows that Gen Z’s investment portfolio is quite varied, with an average asset allocation across multiple asset classes. Equity stands out as the most preferred asset class, making up 26% of their investments.

Preference for Liquid Assets: Additionally, Gen Z maintains an average of 21% of their assets in bank accounts, reflecting their preference for easily accessible funds.Opportunities for Improvement

Despite their financial awareness, Gen Z encounters several pitfalls:

1. Emergency Preparedness: A staggering 69% of Gen Z is underprepared for emergencies, with fewer than six months’ worth of living expenses saved in liquid assets. This underscores the pressing need for improved financial planning and preparedness strategies.
2. Insurance Coverage: Seventy-two percent lack adequate health insurance, and 78% are underinsured regarding life insurance. This gap highlights a crucial area for growth in protecting their financial future.
3. High Debt Levels: Nearly 39% of Gen Z members carry loans that are high to very high in relation to their assets. This significant indebtedness indicates a need for better debt management to ensure financial stability.
4. Credit Usage: There’s a concerning reliance on credit, with 1 in 5 Gen Z individuals having taken out personal loans. Additionally, 29% carry both personal loan and credit card debt, revealing a need for more responsible borrowing practices.
5. Risk Appetite: A majority of Gen Z, 73%, are investing in stocks and mutual funds, reflecting a strong preference for equities as their primary investment class.
6. Savings Insufficiency: Alarmingly, 79% of Gen Z saves less than 20% of their monthly income, suggesting a need for improved saving habits.

How Can Gen Z Plan Their Financial Future?

To achieve financial stability and overall well-being, Gen Z should consider the following goals:

1. Build an Emergency Fund: Aim to save three to six months’ worth of living expenses in a readily accessible account. This essential safety net can reduce stress and minimize reliance on high-interest debt during emergencies.
2. Invest in Skill Development: Continuous learning is vital for career advancement and financial success. Allocating resources for online courses, certifications, and training programs will help them remain competitive in the evolving job market.
3. Prioritize Health and Protection: Investing in health insurance and fostering good health habits is crucial for long-term well-being. This approach helps mitigate the financial impact of unexpected medical expenses and enhances overall quality of life.
4. Implement Effective Debt Management Strategies: Focus on paying off high-interest debts, especially student loans, while avoiding unnecessary credit card debt. Developing a structured repayment plan and exploring options like debt consolidation can facilitate faster financial freedom.

The Way Forward

These insights indicate that while Gen Z is advancing in financial awareness and investment, they still face significant challenges in emergency planning, insurance coverage, and debt management. By addressing these areas and enhancing financial education and resources, Gen Z can take greater control of their financial futures, positioning themselves firmly in the driver’s seat.

Prudent financial behavior from Gen Z is not just an individual concern; it has broader implications for India’s economy, as this generation will soon take on leadership roles.

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