Our Thoughts

Gen Z Investors: Helping Your Child Plan For The Future

By: Baylee Alerding

Recently, I was meeting up with a few friends when I was struck by a moment of adulthood. My friends were discussing their 401ks – isn’t this something that parents talk about over dinner … are we officially grownups? I think we still have a long way to go, but we are certainly on our way there. This moment of reflection did get me thinking; at what point in emerging adulthood do people take the leap into planning for their financial future? And, how can we ensure that they have a solid understanding of personal finance and investing?

Gen Z Investors & The University of the Internet

If your child is beginning their financial journey, where are they turning to learn? It may or may not surprise you but about 41% of Gen Z investors and 38% of Millennials use social media to educate themselves on investing. Social media is the most likely place for Gen-Z investors to seek advice, even before turning to you – their parents or guardians. 1,2

“StockTok,” or the investing side of TikTok, is a popular space for creators to post videos centered around financial education – some can be helpful, but many miss the mark.1,2

For someone who’s just starting out, it can be hard to separate the good from the bad. Social media is a powerful tool, but there’s a lot of misinformation. You can’t be sure they’re offering the best – or even good – advice.  The internet can be a great place to learn (Like on this blog!), but make sure your child is vetting their sources.

You can always go back to basics and send them one of our favorite finance books for young adults. If you already have a financial advisor, they may be willing to speak with your child. At FJY, we coordinate these types of conversations frequently.

Getting Your Gen Z Investor Started

If you want to set your child up for financial success, here are a few things to help them get off on the right foot.

Creating A Roadmap

You need to know where you’re going before trying to get there. What are your child’s financial goals for the future? Do they have an entrepreneurial spirit and aspire to start their own business? Maybe they’re looking to buy their first home, or they’re getting started on their retirement savings. Whatever their goals are, it will help determine the best strategy to get them there.

Determining Risk Tolerance

There is always a risk to any financial investment – determining how much they can live with day-to-day will be a big part of creating your child’s financial plan. They’ll need to consider things like their time horizon, their goals, and their personal comfort. You may find that you’ve had an influence on their tolerance or aversion – or you might discover that they have a totally different style!

Diversification & Asset Allocation

There are ways to help reduce the risks that come with investing. By determining an appropriate asset allocation and building a diversified portfolio, your child can insulate their money from the ups and downs of any one particular investment. The idea is that when one investment is down, the others will be up – or at least won’t be going down at the same time. Diversification won’t eliminate the risks, but it can help reduce stress.

The excitement of owning an individual stock may be more alluring than the more passive nature of purchasing Mutual or Index funds, but just ask “Do you know something the market doesn’t that will allow you to be a successful active investor?” (Hint: The answer is no.)

The Magic of Compound Interest

Time is one of the most valuable resources when it comes to investing. Starting young and saving often allows your child to take advantage of the magic of compound interest – earning interest on the interest investments have earned.

There are many other factors they’ll need to consider while creating a financial plan. Talking with a fiduciary financial advisor can help. As they continue learning and investing help them keep these things in mind.

If they’re looking for a place to start here are some helpful blogs.

I Want to Invest! How do I Prepare? 

I’m Ready to Start Investing! How do I Start?

The Top Money Mistakes People Make in Their 30s

April Is Financial Literacy Month. Do You Have These 5 Finance Basics Down?

References:

  1. https://markets.businessinsider.com/news/stocks/meme-mania-gen-z-pours-into-stocks-tiktok-instagram-advice-2021-6-1030524123
  2. https://markets.businessinsider.com/news/stocks/stocks-are-king-among-genz-millennials-meme-stocks-are-not-2021-5-1030452750?utm_source=markets&utm_medium=ingest&utm_medium=ingest&utm_source=markets

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.