7 personal finance tips for Gen Z, from a Gen Xer

America may be the largest economy in the world, but Americans remain woefully under-educated when it comes to financial literacy, from budgeting to saving to investing. A 2022 Yahoo! Finance report notes that America isn’t even in the top 10 of countries when it comes to its citizens’ financial literacy. And while personal finance is taught in some schools, many states have no such requirement for the subject as opposed to, say, geography.

This is a problem for Gen Z. If you can’t remember the capital of Idaho, the worst that will happen is you’ll have to Google it. But if you remain financially illiterate, you could face a more dire fate like a lifetime of debt, or even homelessness. 

A great way to protect yourself is to start reading a few good personal finance books a year. But which ones are worthwhile? I started reading personal finance books in my mid-20s (though I wish I’d started a decade earlier) and learned, after reading dozens of them, that the good ones are good because they all give the same basic advice. The bad ones just try to sell you a get-rich-quick scheme instead of teaching you how to be financially responsible.

So, here are the seven main bits of advice I gleaned from reading these good personal finance books, things I wish someone had summarized for me when I was younger. (If you’d like to read the source material for yourself—which I highly recommend!—I’ve listed my favorites at the end.)

1. Making a lot of money doesn’t automatically ensure financial security

It’s no secret that the more money you have, the more secure your life can be. But notice I said can, not will. I know people who make half a million dollars a year who have confided to me that they’re always just two paychecks away from financial ruin. In other words, these rich people lay awake at night worrying about their finances constantly, knowing that if they were to lose their job unexpectedly, they’d be in dire straits. Conversely, I know plenty of people making $40,000 a year who could weather unemployment for a year or more before their lack of income would become a problem.

The difference comes down to whether you live within your means. If you make $100,000 a year, you may be able to buy that Tesla, but could you keep up with payments if you suddenly lost your job? Financial security is more about how you manage the money available to you than it is about making a six-figure salary.

My favorite example of this is a man named Ronald Read. He was a janitor and gas station attendant his whole life who drove used cars and mended worn clothing himself. Yet when he died, at the age of 92, the world was shocked to find that he left behind an $8 million fortune thanks to some smart investing—more than half of which he donated to a local library and hospital. People who are often assumed to have no wealth can have more money than those who flaunt their high-salary status. It just about how you manage what’s at your disposal.

2. Don’t inadvertently pay $5,000 for a $2 Frisbee

One of the best personal finance anecdotes I ever read was a warning about not being tempted by credit card offers. I don’t remember if I read it in a personal finance book or some article on the early web, but it went something like this: A college student was walking across campus, on his way to meet some friends, when he came across a booth that had been set up by a credit card company. If the student signed up for a guaranteed credit card, he was told, he’d receive a free Frisbee on the spot. He thought it would be fun to play Frisbee with his friends that day, so he agreed.

He used the Frisbee once but the card, which carried a high interest rate, he used regularly, mainly to buy items he wanted but not needed. After years, he had paid the credit card company more than $5,000 in interest and fees—all because the issuer offered him a cheap $2 piece of plastic he no longer even possessed.

The moral here is not to be lulled into taking a high-interest credit card offer because of any free gift attached (be it Frisbees or “points”). It will cost you way more in the long run than the short-term incentive offers. You should only take on high-interest credit cards if you have no other options to pay for necessities.

3. Pay off your high-interest debt first, then pay yourself, and only then, Apple

It’s September. Apple has just come out with the new iPhone that costs a thousand dollars, and you’ve just received a paycheck for $2,000. What do you do?

People who lead a healthy financial life won’t pay Apple first, no matter how cool the new phone is. After paying for necessities (food, rent, medicine), they’ll use the remainder to pay off bills and high-interest debt. If they have any paycheck money left over, they’ll put it in their savings account or invest it. Only after that nest egg feels grows substantial enough will they then drop a grand on that new iPhone.

4. Invest, but don’t let the market consume your thoughts

The earlier in your life you invest, the more likely you are to see increased returns. This is because, historically, U.S. stock markets have generally trended upwards, not downwards, over time. Sure, there are bad years, and past performance never guarantees future results, but over a long enough timeline, the values of many good companies have historically grown. As your investments increase in value, so will your financial security and peace of mind.

But that “peace of mind” doesn’t come automatically, especially for young investors. That’s because they look at their investments with a short-term mindset and anxiously check the prices of their stocks daily. And for any stock, the short term can be rocky. If there’s a downturn in an industry or a global event (like a pandemic or war) that affects the markets, your fledgling investment in even good companies could drop. This might keep many young investors up at night. But older investors know not to fret about the short-term drops.

“I would tell [investors], don’t watch the market closely,” legendary investor Warren Buffet told CNBC. “The money is made in investing by owning good companies for long periods of time. That’s what people should do with stocks.”

5. Don’t rely on others’ investment tips. Do your own research

Investing comes with risk—there’s always the possibility you could lose all the money you invest. We all have different risks, risk tolerances, and personal and financial goals, and these change throughout our lives. These risks, tolerances, and goals should act as a compass to help choose which investments may be a good choice for you.

Only you know what’s good for you, so don’t use a friend’s or journalist’s hot stock tip or advice as your sole bellwether for how to invest. What’s a wise investment choice or plan for others may not be wise for you. You are responsible for your money and investments, so take the time to learn about the companies and the industries they operate in before you buy—or sell—any stock or engage in any investment strategy. And if anyone ever tells you that a certain stock is a “sure thing,” know they are full of it. So-called “sure things” don’t exist in the investment world, and past performance never guarantees future results, so do your own research and make informed investment decisions based on your unique situation and goals—not anyone else’s.

6. Beware of the bandwagon

Oceanfront property, NFTs, cryptocurrencies: These are things that some people have made fortunes on. But just because one type of asset is hot, or has been for years, doesn’t mean it will continue to be so. 

A friend of mine first got the feeling that cryptocurrencies may have reached their peak when, in December 2021, the driver of a taxi she was in started pitching her on the coin he and his buddy had just invented. Bandwagons can be signs of bubbles. So again, do your research. Consider thoroughly whether the popularity of an asset means it may have already reached its peak—and above all, remember the tulips.

7. Finally, don’t be too proud of your gains, and don’t look down on others

Did you make a killing in the stock market last year? Great. Now keep it to yourself. No one else cares, and any gains you enjoyed probably had as much to do with blind chance as your investing skills. Bragging about how much wealth you’ve accrued is not just tacky, but arrogant. And arrogant people sometimes can’t see what’s right before their eyes, which can lead them into believing in hot-hand fallacies, where they assume what’s already happened (growing their wealth successfully) will continue to happen because they “can’t lose.”

Also, never look down on anyone who doesn’t invest or doesn’t have a healthy nest egg saved up. Having leftover money to invest or save each month is a privilege that not all people enjoy. Many Americans are just struggling to pay for necessities: food, rent, education, and ridiculous healthcare costs—and they are working their asses off to do so. It’s not that they are too lazy or shortsighted or stupid to invest or save, it’s that social and economic realities and inequalities prevent them from doing so. No wonder the financial future of so many Americans is so bleak—this is true for my generation and especially true for Gen Z.

Personal finance books I recommend

Never—ever—treat any single personal finance book as a bible. They all have different takes on personal finance, and none will be the right solution for every person at every stage of their lives. But, as I’ve said, the good ones all contain the same basic pieces of advice, some of which are detailed above. 

The personal finance books I (and others!) feel have stood the test of time include The Automatic Millionaire by David Bach, Beating the Street by Peter Lynch, and The Millionaire Next Door by Thomas Stanley and William Danko. All provide good primers on saving and investing, especially for people just getting started.