For Generation Z (ages 18-27), navigating the world of personal finance can often feel like walking a tightrope, especially with so many competing financial goals and savings priorities. Not to mention the rise in debt. TransUnion data reveals that Gen Z borrowers are opening more credit lines and have both higher debt levels and delinquency rates compared to Millennials (now ages 28-43) at the same age.
With debt and the cost of living on the rise, plus a host of other financial responsibilities, the challenge of repaying debt while saving for the future is daunting. According to Plinqit’s 2024 State of Savings Report, 43% of Gen Z said they are saving to pay off debt this year, making it one of their top savings priorities. The survey, commissioned by Plinqit, was conducted online by The Harris Poll among over 2,000 U.S. adults.
At the same time, the survey report shows this generation is focused on other financial goals too, such as travel, purchasing a vehicle, or buying a home. So, how can Gen Z effectively manage these conflicting goals?
In this article, we’ll explore strategies that can help young adults strike the right balance between repaying debt and saving for the future. We’ll also examine how financial institutions (FIs) can play a key role in supporting Gen Z’s financial journey by providing the right tools, guidance, and financial products, such as high-yield savings accounts, to help them stay on track.
The Dual Challenge: Saving While Paying Down Debt
Given the trends, one of the biggest financial challenges Gen Z likely faces is figuring out how to allocate their limited resources between saving and debt repayment. The instinct for many might be to aggressively tackle debt first, but doing so can leave them vulnerable to future financial setbacks if they lack adequate savings. On the other hand, focusing too much on saving can allow debt to snowball, especially with high-interest rates on credit cards or student loans.
The key to managing both goals is finding the right balance based on one’s financial situation, needs, and goals. Financial institutions can step in here by offering personalized financial education and tools that help young adults evaluate their options and prioritize their financial health.
Why High-Yield Savings Accounts Matter
One of the most effective ways for Gen Z to build their savings while paying down debt is by utilizing a high-yield savings account. These accounts offer a significantly higher interest rate compared to traditional savings accounts, meaning money saved can grow more quickly. This allows Gen Z to maximize their savings efforts without needing to put away large amounts of money each month.
High-yield savings accounts are especially beneficial for those saving for long-term goals like purchasing a home or vehicle. Plinqit’s report reveals that about one-third of Gen Z (32%) are already saving to buy a home and 36% are saving to buy a car. By taking advantage of higher interest rates, they can accelerate their savings without straining their ability to repay debt at the same time.
Additionally, high-yield savings accounts can serve as an emergency fund, offering a financial safety net that helps prevent the need to accumulate more debt in the future. With 22% of Gen Z also saving for major life events such as weddings or starting a family, it’s clear that they have many financial goals competing for their attention and income. Offering high-yield savings accounts helps Gen Z save smarter, not harder. Personalized financial education and tools that help young adults evaluate their options and prioritize their financial health.
The Importance of Financial Education
Another essential factor in helping Gen Z manage both saving and debt repayment is financial education. Gen Z faces significant gaps in knowledge about how best to manage their finances, as this generation has the lowest financial literacy, according to the Global Financial Literacy Excellence Center. This is where financial institutions can step in to bridge the gap.
Financial education programs and resources – whether digital workshops, one-on-one financial coaching, or educational content on budgeting, saving, and debt repayment – can empower young adults to make informed decisions. When FIs equip Gen Z with the right knowledge, they’re more likely to feel equipped to take control of their financial future.
Moreover, financial education can help them prioritize debt repayment without neglecting their savings. For example, paying off high-interest debt first, while contributing to an emergency fund in a high-yield account, can keep Gen Z on track with both goals. Tools like budgeting apps and savings calculators can provide a visual understanding of how to balance these goals and stay motivated.
How Financial Institutions Can Support Gen Z
Given that 44% of Gen Z are saving for travel this year (superseding debt repayment), financial institutions have an opportunity to help this generation pursue their dreams while maintaining financial wellness. Offering tailored financial products, like travel-specific savings accounts or goal-based saving features within apps, can motivate young adults to stay consistent with their savings while still making room for debt repayment.
FIs can also promote flexible savings plans that accommodate both short-term and long-term goals. This could mean creating customized savings plans based on an individual’s income, debt levels, and financial goals, such as saving for a down payment on a house (32% of Gen Z are already working toward this) or a major life event like a wedding.
Managing the competing financial goals of debt repayment and saving is a tough challenge, but it’s not impossible. By leveraging high-yield savings accounts, financial education, and personalized support from financial institutions, Gen Z can strike the right balance to maintain their financial wellness.
Financial institutions play a vital role in this process, offering the tools and resources Gen Z needs to manage their money effectively. By supporting both their savings and debt repayment efforts, FIs can help this generation build a secure financial future while pursuing their dreams, whether that’s traveling the world, buying a home, or starting a family.