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An emergency fund covers unexpected expenses like car repairs, medical bills, or loss of income.
But nearly one in three Gen Zers (ages 18-26) don’t have any emergency savings, according to Bankrate’s recent report. That’s compared to only 15% of baby boomers (ages 59-77) with no emergency savings. Baby boomers are also three times more likely to have enough savings to cover six or more months’ worth of expenses than Gen Z.
Why is this? Most Gen Zers are new to the job market, working primarily for entry-level wages while dealing with debt like student loans. What’s more, the cost of living has increased, making it difficult for young adults to save. It also takes time to build up an emergency fund, and as one of the youngest generations, many Gen Zers haven’t had enough time.
Case in point: Only 32% of Gen Zers say they’re comfortable with their level of emergency savings.
People often turn to costly forms of borrowing like credit cards to cover an emergency. Almost 40% of Gen Zers say they have more credit card debt than emergency savings. A majority — 85% — worry they’d run out of money within a month if they lost their job.
Credit cards can provide short-term financial relief but can risk long-term consequences that leave you in a worse financial position. Potential pitfalls include:
Concerns about career paths, relationships, and the stability of one’s finances can lead to money anxiety.
Over 50% of Gen Z say money negatively impacts their mental health. Of those, one in three say they worry about money daily. These financial fears can hold Gen Zers back from reaching their goals.
Worrying about covering your immediate bills prevents you from focusing on your other financial goals. Many Gen Zers joined the workforce during the COVID-19 pandemic, which came with lots of economic uncertainty. This may make them more risk-averse when it comes to making financial decisions.
It’s difficult to overcome financial fears, but creating a plan and taking small steps to reach your goals can keep you motivated and reduce anxiety.
Building an emergency fund is the first step to better financial health — it’s the foundation of your financial plan. With a solid emergency fund, you can avoid relying on high-interest loans or accumulating credit card debt.
Having an emergency fund can lead to financial freedom. You’ll be able to make choices based on your wants and goals rather than financial obligations. For example, if you lose your job but have savings, you take more time to find the right next opportunity rather than rushing into the first job you can find.
An emergency fund can also help protect your long-term goals. If you’re saving for retirement or buying a home, an emergency fund can avoid setbacks.
To build an emergency fund:
Gen Z faces unique financial challenges — but there are ways to overcome some of these hurdles. Building an emergency fund, adopting smart money habits, and setting realistic goals are essential for financial security.
Remember that financial security is a journey, and it requires dedication. By taking control of their finances, Gen Z can empower themselves to break free from money struggles and build a solid financial foundation.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.