Financial planning for GenZ, away from finfluencers

For an early start

Many so-called Gen Z individuals - the generational cohort that would be in the age bracket of 18-25 as on date, are now reaching the life stage where they would be picking up their first paycheque. With that, arises the need for financial planning. In today’s era of hyper customisation of everything from recreational content to food, tailored guidance is the need of the hour.

To be fair, even the previous generational cohorts before Gen-Z (millennials, Gen X or baby boomers) were not “serious”  investors when they were at the age that Gen Z is today. Most Gen Z investors are still in the early stages of their careers and are finding their feet, so it could be said that they are less interested in investing with purpose and more interested in speculative investing that has the potential to deliver supernormal returns in a short span of time, even at the cost of losing their money. There is really no harm in that, because there is a time and place for everything. There is a right age to spend money and take speculative risks, and then there is an age when it’s time to hunker down and start putting that nest-egg together. However, the next generation needs to be especially cognisant on when this “switch” should be done, because of the information overload that is prevalent today. 

According to a recent study by the CFA institute called “GenZ and Investing: Social media, Crypto, FOMO and Family,” 48 per cent of Gen Z investors named social media, and 30 per cent named finfluencers as their primary go-to source for investment advice. Needless to say, this is a very detrimental way of investing for the long term! Many of these so called finfluencers are not qualified or equipped to provide sound investment advice, having not gone through even a single market cycle successfully themselves.

This study also uncovered some interesting trends about Gen Z and their investing habits. First off, Gen Z is actually starting to invest earlier than millennials on average – some even at the age of 18. However, 55 per cent of them are investing into Cryptocurrencies, 41 per cent into individual stocks and 25 per cent into NFTs. The propensity for mutual fund investments (a clear indicator or more serious, goal-based investing) is low for Gen Z investors. Real estate is not viewed favourably by Gen Z investors as they are large ticket outlays and require a high degree of personal leverage.

We do predict that a lot of the next generation investors will naturally become more serious, purpose-driven investors in another 3-4 years as they approach their 30s and familial responsibilities take over. A small but increasing number of Gen-Z investors, who presumably opened their first trading or crypto account during the pandemic 3 years ago, are already coming to us with financial goals in mind (such as an emergency fund, retiring in 20-25 years from today or buying a home) and working with us to give structure to their goals and invest for them in a more serious manner. We believe that this trend will pick up over time, and a larger percentage of Gen Z investors will seek advice from investment professionals and shun finfluencers and social media as their primary source of investing information. 

This is where customisation will become critical. Gen Z will quickly tire of one size fits all investment solutions that do not cater to their specific investing goals. They will also not be receptive to the traditionally “sales driven” delivery model for financial services, as this would immediately make them sceptical and untrusting of the person sitting across them, claiming to be their “advisor”. 

The perfect investing platform for the new generation is one that will have the ability to tailor make scenarios, map investments to clear goals, and “gamify” the journey. Not only will this reduce their tendency to invest for “entertainment”, but it will also increase their investing resilience and enable them to remain invested through market cycles without hopping from one asset class to the other in search of the “next big thing”.

(The writer is Co-founder and COO, FinEdge)