How young people can save, spend – Community News
Stimulus Check

How young people can save, spend

Many Americans need another round of Covid incentives to make ends meet, but others use it to build an emergency savings fund, pay off debt and stimulate the economy by spending money.

David Paul Morris | Bloomberg | Getty Images

Now that the Senate has approved the $1.9 trillion Covid stimulus and aid package, financial experts have an important message for younger Americans who may qualify for an unexpected “windfall” in the form of a $1,400 payment: be don’t be afraid to spend your Covid stimulus check on a vacation, new Apple device or flat screen TV.

That’s the message from John Eringman, a 25-year-old self-taught personal finance guru who guides thousands of Gen Z and millennials through the ins and outs of investing, saving and budgeting. It’s okay to give a gift, with one caveat: as long as you already have an emergency fund and not be saddled with debt.

“It’s definitely okay to spend a little bit on something you really wanted,” says Eringman, one of the many Generation Z and Millennials who have come to TikTok to give personal financial tips to uneducated peers. “But 80% of the money you get from the government should be saved or used to pay off debt.”

With the new stimulus check on the horizon, many Americans are considering the best ways to save or spend the $1,400 slated to hit bank accounts within the next month. According to the IRS, about 159 million Americans received stimulus checks in the first round of payments last year.

President Biden said Saturday after the Senate vote that stimulus payments should begin this month to the more than 85% of eligible U.S. households.

For many individuals, there is no choice when it comes to using incentives: they need more help because of financial insecurity and food insecurity. “This plan will get checks out the door this month for Americans who so desperately need the aid,” the president said on Saturday.

According to a recent CNBC Invest in You + Acorns survey on pandemic finance, more than half of those surveyed (53%) said they needed another round of government stimulus; 29% said they only need it to “survive”. Thirty-one percent of respondents say they have used previous government checks to cover daily expenses, while 16% used previous checks to pay their rent or mortgage.

Most advisors encourage paying off debt, everyday expenses and building an emergency fund, and some recommend making long-term investments in the stock market if possible. One thing is clear: they are concerned about how Gen-Z, an age group generally lacking in financial literacy, will lend a much-needed helping hand for many.

Multiple ways to save and spend stimulus

While not all members of the youngest adult generation in the US (18 to 24-year-olds) are eligible for a stimulus, according to the recent CNBC survey, many have already received a previous stimulus check from the government and can use another. , conducted before the final details of the stimulus package emerged from SurveyMonkey between Feb. 1 and 8, among a national sample of 6,182 adults.

Of Gen Z respondents, 64% said they need another round of stimulation, while 29% of those younger adult Americans said they need it to “survive.”

Forty-one percent of this age group has already received a government incentive check as part of the first Covid-19 response. A quarter of those respondents spent the money on everyday expenses, a quarter saved it, 13% said they were paying off debt, and 20% paid rent or mortgage.

A combined 8% of Gen Z respondents said they spent the money on “something different” or “something special”, a sign that some consumers have other priorities – these items include money for education, buying a car and buying a car. tooth extraction, according to Erin Pinkus, a researcher at SurveyMonkey, who reviewed the survey results for CNBC.

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Sarah Newcomb, director of behavioral science at Morningstar, says it’s okay to enjoy your incentive check as long as you’ve paid off existing debt and hit a savings goal. She recommends individuals save at least 20%, and also stressed the importance of having cash “on hand” for unexpected expenses.

Thirty-nine percent of Gen Z respondents to the survey said that if they had a $2,000 unexpected expense, they could tap into savings to pay for it. Twenty percent said they should borrow from family or friends, 10% take out a personal loan and another 13% said they “didn’t know” how to cover the financial emergency.

Money, age and experience

Newcomb, who has closely studied how consumers react to unexpected earnings, says age and experience play a big role in how individuals use “windfall” money. Those who grew up during the 2008 recession and matured during the pandemic economy may be more risk averse and more likely to save after seeing parents or relatives struggle. But at the same time, younger generations generally struggle to plan for the future, in part because many are still developing cognitively.

“When we’re younger, the future feels further away,” Newcomb said, adding that saving is generally a difficult concept to learn.

When they have questions about household finances, according to the survey, 60% of Gen-Z turn to their mother or father, while 38% claim they have been taught the skills self-taught.

Twenty-seven percent of Gen-Z are also the primary decision-makers, which is much lower than other age groups but indicative that they are taking actions to “secure a financial future,” Pinkus wrote in an email discussing the study findings. .

According to a survey by CNBC/SurveyMonkey, a combined 51% of people between the ages of 55 and 64 and 60% of people over 65 rate their financial literacy as excellent or very good. That drops to a combined 28% for 18- to 24-year-olds.

In finance, they teach us things about valuing a company and ratios, but as for financial literacy in everyday life, I haven’t learned it.

Faares Quadri, Business Administration student at the University of Illinois at Chicago

While financial literacy is generally seen as a necessary skill to educate younger generations, there is a gap within the education system. Eringman, who studied finance in college, never took a personal finance course. It took him two years to get a solid foundation of the subject, during which he listened to podcasts, read books and eventually started teaching friends and families.

Faares Quadri, a current business student at the University of Illinois at Chicago, says he took a personal finance elective in high school and learned some skills from a professor, but most of the knowledge he gains are more than 1, 3 million TikTok followers was self-taught via YouTube and articles.

“In finance, they teach us things about valuing a company and ratios, but in terms of financial literacy in everyday life, I haven’t learned it,” Quadri said.

Only 21 states across the country require high school students to complete a course that includes personal finance classes.

The lack of financial education in schools is a universal problem that can have lasting consequences, said Annamaria Lusardi, a professor of economics and accountancy at the George Washington University School of Business and the founder and academic director of the Global Financial Literacy Excellence Center. But it cannot be a lesson learned only by parents or social media. Younger generations today make more financial decisions regarding retirement and student loans than previous older generations.

How to invest in the stock market?

Newcomb encourages investing in incentive money, but she cautions against entering the stock market without prior knowledge or research. Over the past two months, the retail investment craze has shaken Wall Street. Powered by Reddit users and social media, and free trading accounts offered online by brokers including Robinhood, many new investors have been trying to make a quick buck.

“Just because you get extra cash and hear about the stock market and it’s easier to invest doesn’t mean it’s the right choice,” Newcomb said. “People without knowledge can get complicated investment strategies and get deep into their heads, and that worries me.”

Twenty-two percent of 18- to 24-year-olds said they had bought a stock for the first time in the past 12 months, compared to 10% of Americans overall, according to the CNBC survey.

Taylor Price, a 20-year-old TikTok personal finance guru, says the trend of retail investing and social media has shifted focus to personal finance and motivated people more than ever to learn more about investing.

Douglas Boneparth, a financial planner who works with young professionals, recommends taking care of obligations such as rent and food, and using the money to build savings. While there is no “one and done” solution, he recommends that if consumers plan to use leftover incentive money to invest in the stock market, they follow a long-term growth strategy or contribute to an individual retirement account (IRA).

Steve Chen, a 33-year-old social media guru who has built a personal financial following through social media under the age of 25 and under — about a third of whom he would define as “beginner investors” — encourages investment in exchange-traded funds. They lower market risk compared to individual stocks by investing in a sector or a wide range of companies.

During the first round of stimulus checks, he encouraged followers to buy groceries and pay rent, funneling some of it into an emergency fund that could last three to six months. He warned against spending on burgers or Amazon purchases.

“This isn’t just free money, make sure you use it wisely,” Chen said. “It doesn’t mean you can’t rent a movie or enjoy life, just be more aware of what you’re spending it on.”

This story was updated to reflect the passage of the Covid aid package through the Senate on Saturday and President Biden’s comments about the stimulus controls after the vote.

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