Financial planning for Gen Z: Are they in the driver’s seat yet?

Gen Z's investment portfolio is notably diverse, with an average asset allocation that spreads across various classes.

India's Gen Z—those born between 1997 and 2012 and who comprise 30 percent of the population—is emerging as a significant economic force, compared to 14 percent in Japan and 25 percent in the US. And given India’s radical transformation in the digital landscape, Zoomers are often known to be at the forefront of these changes. But are they in control of their financial future?

We did a financial planning survey for 1,536 Gen Z individuals and found some startling facts about how they manage their investments, expenses and debts, credit cards, and insurance.

Of those surveyed, 63 percent live in top-tier cities. Over half (53 percent ) earn between Rs 5 lakh and Rs 15 lakh.

Diverse investment portfolio: According to our data, Gen Z's investment portfolio is notably diverse, with an average asset allocation that spreads across various classes. Equity emerges as the most favoured asset class, comprising 26 percent of their investments.

Preference for liquid assets: Moreover, Gen Z keeps an average of 21 percent of their assets in their bank accounts, indicating a desire for readily accessible funds.

Opportunities for improvement

While financially aware, Gen Z faces several pitfalls.

Inadequate emergency preparedness: Sixty-nine percent are underprepared for emergencies, with less than six months of emergency corpus in liquid assets. This highlights the urgent need for better financial planning and preparedness strategies.

Not enough insurance: Seventy-two percent are underinsured when it comes to health cover, and 78 percent are underinsured on life insurance.

High debt levels: The significant amount of indebtedness that prevails in this cohort is a significant concern, with nearly 39 percent of individuals carrying loans that are high to very high relative to their assets. This imbalance underscores the importance of managing debt more effectively to ensure financial stability.

Credit usage: Over reliance on credit is evident, as personal loans are prevalent among Gen Z, with 1 in 5 having taken one out. Additionally, 29 percent carry both personal loans and credit card debt, highlighting the need for more responsible borrowing habits.

High risk appetite: Equity is the most common asset class for investment, with 73 percent of the Gen Z populace investing in stocks and mutual funds.

Insufficient savings: In terms of regular monthly savings, 79 percent of Gen Z people save less than 20 percent of their income.

Also read | Gadget Gluttons: Gen Z, millennials gobble up smartphones funded by personal loans

How can Gen Z plan their financial future?

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

Build an emergency fund: Gen Z should aim to save three to six months of living expenses in a readily accessible account. This provides a crucial financial safety net, reducing stress and preventing reliance on high-interest debt during unexpected events.

Invest in skill development: Continuous learning is key for Gen Z's career growth and financial success. They should allocate resources to online courses, certifications and training programmes to stay competitive in the rapidly evolving job market.

Prioritise health and protection: Investing in health insurance and maintaining good health habits is crucial for Gen Z's long-term well-being. This helps avoid potential financial burdens from unexpected medical expenses and ensures the overall quality of life.

Implement effective debt management strategies: Gen Z should focus on paying off high-interest debts, particularly student loans, while avoiding unnecessary credit card debt. Creating a structured repayment plan and exploring options like debt consolidation can help achieve financial freedom faster.

Also read | Wedding loans: Are Gen Zs, millennials risking their financial future in pursuit of social media ‘likes’?

The way forward

These insights suggest that while Gen Z is making strides in financial awareness and investment, they still face significant challenges in areas such as emergency planning, insurance coverage and debt management. By addressing these issues and providing targeted financial education and tools, Gen Z can take fuller control of their financial futures and truly sit in the driver's seat of their financial journey.

Prudent financial behaviour from GenZ isn’t just about them, it's about India at a larger level as sooner than later these Gen Z folks will be the ones in charge.

(The author is Co-founder & CEO at 1 Finance)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.