Growing up is a journey filled with milestones. From elementary school graduation to learning passions, starting a first job and, eventually, building a secure financial future.
As children transition into adults, they need financial tools and strong money management skills to thrive. So far, our nation has struggled to teach and embrace good financial literacy.
In this article, our non-profit credit counselors talk about Gen Z finances and how to help prepare your teens and young adults for financial success.
The importance of financial literacy for teens and young adults
In 2024, Americans carried record-setting, growing debt. Today’s young adults continue to struggle with debt. Gen Z adults have maxed out credit cards, and almost half depend on financial support from their families.
However, Gen Z’s strengths may allow them to learn from past generations’ mistakes.
“Gen Z is uniquely positioned to take control of their financial futures, thanks to their tech-savvy nature and access to endless resources,” said April Lewis-Parks, Director of Education and Communications for Consolidated Credit.
Parents and teachers have an important role in educating Gen Z about personal finances.
“It’s never too late to teach kids healthy financial habits,” said Todd Christensen, Housing Counseling and Education Manager for Debt Reduction Services, a member of FCAA. “Having discussions with youth long before they start earning money is best, which means fourth and fifth grade when they start mowing lawns, babysitting and shoveling snow for neighbors.”
1) Teach about income, expenses and budgeting
Many Zoomers, born between 1997 and 2012, still live at home where parents can model and teach healthy financial habits. Sam Hohman, CEO of Credit Advisors Foundation, recommends beginning with simple conversations about day-to-day money decisions.
“Children learn their money habits in the home. The earlier and more often they are exposed to money concepts, the better their decision-making process will be,” said Hohman. “Talk about how you make [financial] decisions by saying things like, ‘We are trying to save for a house’ or ‘I always pay my bills on time.’”
A visual picture of where money goes each month is a powerful tool that stuck with Lori Pollack, Executive Director of the Financial Counseling Association of America.
She shared an example: “A father took his salary for a month home in cash. He sat at the table with his family and showed them where the money went every month, laying out stacks of cash for car payments, food, gas, mortgage, telephone, cable, etc. When all the bills had been paid, he placed the remaining money into piles for savings, fun and giving.”
Teach the reason for budgeting, not just how to budget. This helps teens develop good spending habits and stick to their budget and savings plan. If you aren’t sure how to develop a budget, adults can use FCAA’s budgeting calculator. Teens can use this teen budget calculator or try the 50-30-20 rule.
“The 50-30-20 rule works well,” explained Hohman. “50% of after-tax income can be used for needs such as housing, transportation and utilities. 30% goes to wants such as gym memberships or occasionally eating out, and 20% should be saved.”
Learning about money doesn’t have to be complicated or boring, says Lewis-Parks.
“It starts with small, relatable lessons. Managing an allowance can teach kids how to divide their money into savings, spending and giving categories,” said Lewis-Parks.
“Parents can also encourage children to set financial goals, like saving up for a video game or a special outing. Activities like these create a foundation that makes financial management approachable and even enjoyable.”
Teaching money management skills to Gen Z depends on what your child can understand at their stage in life.
“From ages 10 to 14, parents can focus on teaching about needs versus wants, budgeting small amounts and learning to save money,” said Lewis-Parks.
By the teenage years, from ages 15 to 17, concepts like debt, interest and responsible credit use become more relevant. This is also the perfect time to introduce the idea of using financial apps to manage money.
“As young adults and college students, they will likely take on their first credit cards or student loan debt, making it essential for them to understand the consequences of carrying balances and the importance of paying bills on time,” Lewis-Parks continued.
2) Open a bank account for your teen
A bank account is a vital tool for young people to learn to use in preparation for the future. According to Hohman, physically taking your child to a bank, introducing them to the tellers and having them make a deposit makes a huge impression. This simple step helps foster a trusting relationship for your child when they eventually need a car loan or mortgage.
Many people today use financial apps in place of or in addition to traditional banking. Financial apps can be helpful, but they do have some drawbacks to consider.
“Banks offer a layer of security and reliability, including FDIC insurance that protects deposits up to $250,000, as well as the option to speak to someone in person for help with complex financial issues,” said Lewis-Parks. “On the other hand, digital apps cater to Gen Z’s desire for convenience and speed. These tools excel in offering automated budgeting, real-time notifications and investment features that simplify money management.”
“Digital apps may be easy and quick to use and to transfer funds between friends, but they lack safeguards that might keep Zoomers from losing money to a scammer,” warned Christensen.
“Venmo, Apple Pay, Paypal, Facebook Pay, etc., should all be treated like transferring cash. If you give money to someone accidentally, there’s no getting it back. Even Zelle, while tied to an FDIC insurance account, can be used to send money accidentally to an unintended recipient.”
A smart Gen Z money tip is to build financial security with traditional bank accounts and use apps for daily money management.
3) Help young adults establish good credit
Establishing good credit early can greatly benefit young adults’ financial lives. This usually starts with a low-limit credit card, which the parent usually oversees. Teach teens to pay their bills on time, the dangers of accumulating debt and how to avoid accruing credit card interest.
Is your teen responsible enough to have a credit card?
When should you consider credit cards for teens and young adults? Christensen encourages Gen Z young adults to meet four financial responsibility guidelines before opening a credit card:
- They must have a stable and steady income for six to 12 with the expectation that it will continue uninterrupted into the foreseeable future.
- They must create and live by a budget for six to 12 months.
- They must build a savings fund for the equivalent of one to two months of living expenses.
- They must use a debit card for six to 12 months without having a charge declined.
What kind of credit account is right for your teen?
“Parents can add their teenagers as authorized users on credit cards, which allows them to build credit history in a low-risk way,” said Lewis-Parks.
For those ready to manage credit independently, a secured credit card, where their own money acts as collateral, is a great starting point.
How do you prepare young adults to use credit?
Using credit effectively means young adults can borrow money, but they must think of their card as a small loan for a short time period. High-interest credit cards make carrying balances expensive. FCAA experts recommend that everyone pay off their credit card debts in full each month.
For more information about credit scores, why they matter and how to build good credit, this FCAA article can help.
4) Discuss the value of long-term financial planning
FCAA financial counselors emphasize the importance of budgeting, emergency funds and retirement planning. Teens and young adults should learn these skills early.
Smart budgeting tips for teens include using the teen budgeting calculator, setting up a direct deposit for paychecks and using financial apps to track spending and savings.
Saving for long-term purchases or expected maintenance should also be part of your teen’s budget. Another part of their savings should be used to build up their emergency fund. Emergency funds protect people from falling into debt if they are out of work or have a medical emergency.
Christensen recommends that Gen Z young adults use direct deposit from their paychecks to build an emergency fund in a separate account.
“Start by saving one percent of your paycheck. Each month or two, work your way up one percentage point at a time until you’re saving 10 percent,” he advises.
Gen Z must prioritize their retirement savings as well. Young adults have the time to use compounding interest in their favor with IRAs and 401K accounts. Every dollar saved can grow and create a solid financial future for your child.
“If your employer offers a match on the 401k, participate immediately. Even if it is a tiny amount,” urged Hohman. “This builds the habit and will pay off huge dividends in the future.”
Create good financial literacy for Gen Z teens and young adults
Through each stage of life, good financial literacy and habits pave the path to a strong financial future.
Parents of Gen Z teens and young adults have an opportunity to teach valuable lessons about finances. These lessons should cover how to create a budget and an emergency fund. They should also teach ways to get and maintain good credit. Finally, they should explain how to save for long-term goals.
The FCAA and our members work to encourage financial literacy and prevent young adults from falling into debt. Parents and teachers can learn more about Gen Z finances with these additional financial education resources: