The Top 2 Financial Questions Gen Z Should Be Asking — But Don't
A recent study has found that 85% of Gen Z claim to have abandoned making a financial decision simply because they were confused by the language surrounding the decision itself, as reported by CUInsight. That’s a shocking figure, one that indicates a critical problem for an entire generation.
The problem, though, isn’t that Gen Z lacks the smarts to deal with financial problems and decisions. The problem is that a majority of Gen Z appears to lack true financial literacy — the training, skillsets and confidence to make solid and informed decisions regarding their financial future. That financial illiteracy can then breed fear — and finally avoidance — of major financial decisions.
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“I've witnessed first-hand the point at which Gen Z's confusion over financial jargon stops being a theoretical question and begins to cost real money,” said Cody Schuiteboer, president and CEO of Best Interest Financial, who warned that delaying decisions at a young age carry consequences as you get older. Or as he put it: “The confusion of age 22 manifests as a number on the screen at age 28.” Here are the two financial questions you Should be asking — but don't.
'What Is My Interest Rate?'
“The question Gen Z tends to sidestep the most is: ‘What is my interest rate and how much does it really cost me?’,” Schuiteboer said. Specifically, he noted that young people will agree to something like a 24% APR credit card loan without considering what that interest rate means in terms of dollars instead of percentages.
“A $3,000 loan with 24% interest over two years may seem like a theoretical problem,” he explained, “but it actually amounts to giving away around $800 in interest payments for no reason.” Understanding that high interest rates can exponentially compound the amount of real money you will owe for a loan, credit card payment or bill is crucial to your financial well-being.
'How Does This Change My Credit?'
Perhaps even more crucial to your financial future than considering interest rates is questioning how certain decisions will impact your credit rating over time. The health of your credit rating — which is determined by several factors — is what companies use to determine whether or not to offer you a credit card, an auto loan, a mortgage or an apartment rental contract.
“Most young people aren’t able to connect a late phone bill payment or maxing out their credit card today with future mortgage denials or higher rates,” Schuiteboer explained. Defaulting on a single loan in your twenties, for example, can have disastrous consequences for your thirties by devastating your credit health and keeping you from receiving an affordable car loan or mortgage on your first house.
The Bottom Line
As Schuiteboer noted, this lack of financial literacy isn’t an abstract — it can lead to serious real-world financial problems for your future.
“Gen Z has grown up in a world where money is presented in the most friendly, simplest, most efficient form possible and almost never in total dollars,” he explained. “According to industry research, most young adults believe that financial jargon isn't made for them and when something is both confusing and intimidating, it's natural to avoid it rather than confront it. Avoidance might seem like a good strategy in the short-term, but it is by far the most costly feeling in personal finance.”
To avoid such consequences, basic financial literacy is required. Always translate percentages into dollar amounts. Ask questions. Do research. Seek expert advice.
“The questions that Gen Z avoid don't just go away,” Schuiteboer said. “Instead, they're answered for them, in the least favorable way, by a lender, at the most unfavorable time.”
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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