How gen Z can dig their way out of a debt hole

Despite the seemingly endless amount of resources online and in real life, gen Z hates talking about personal finance.

Who can blame them, said Jordan Damiani, a senior wealth adviser at Meridian Credit Union. After all, achieving financial goals, such as saving for a house, can feel like “pie in the sky,” he said, especially when the housing affordability crisis is worse than ever. “It’s easy to be discouraged.”

Gen Z would prefer to talk about politics, parenting struggles and sex and infertility than debt, salaries and bad investments, according to a survey published in January by financial software maker Inuit Inc.

The most common personal finance issue this generation faces tends to be around debt, experts said, but there are some realistic and easy ways for the average gen-Zer to get out of the hole.

How to start

Damiani and Jessica Moorhouse, an accredited financial counsellor at MoorMoney Media Inc., both said younger Canadians can sometimes lack the financial literacy of older generations. People between the ages of 18 and 34 tend to seek financial advice from friends and family or the internet, according to a 2019 study by the federal government, while those aged 65 and older generally go to a financial adviser or a bank.

But the amount of available information can feel overwhelming and disjointed for gen Z, Moorhouse said.

“A lot of them are finishing university, getting their first job and realize they don’t know a lot about (getting started),” she said. “You get that analysis paralysis.”

It’s important to take a step back sometimes and consider what’s happened in the past for some comforting perspective, she added. We’re not in a depression like in the 1930s or the era of high interest rates that those who tried to purchase a home in the 1980s might remember.

Credit-card debt and student loans tend to be the biggest debt issues gen Z deals with, the experts said. Car loans are another big issue, said Zac Lofeudo, a mortgage agent at BRX Mortgage Inc.

“People take more than … they need or more than they can afford because it’s easy to get car loans when you have income,” he said.

Easy first steps

No matter what, the first step in getting a handle on your debt or personal finance situation begins with assessing how much you earn and spend each month and what you can afford. In other words, a budget.

This process doesn’t have to be difficult, Moorhouse said. Most banks allow customers to download credit-card and debit statements online, which can be imported into digital budgeting apps that can help make one for you.

Moorhouse and Lofeudo said those who have student loans and credit-card debt shouldn’t worry about the former because banks don’t view the former negatively on an applicant’s risk profile when they’re applying for a loan, perhaps even a mortgage.

But if you have multiple credit cards, find out which has the highest interest rate and focus on paying that one off first.

“Don’t worry about the student debt, make your minimum payments,” Moorhouse said. “Really, just focus on the high-interest stuff; that’s the stuff that kills you (financially).”

Also remember that even if you’re in debt, it’s still necessary to save, Damiani said.

“Treat your debt repayment and savings like a bill and automate it,” he said.

Just as you might automate your rent or cellphone bill payments, treating the amount you decide to allocate to debt repayment and savings like regular bills provides an easy “litmus test” to see whether your budget is working.

“If you continue to go into debt then it’s not working. You kind of have to rejig things,” Damiani said. “If you’re not going into debt and you’re still able to repay … and save, well, then it’s working.”

Planning for the future

It’s important to consider your credit score when planning future needs and purchases, such as buying a home, because that’s a factor in getting approved for loans like a mortgage, Lofeudo said.

If you have credit cards, he recommends keeping total purchases to less than 30 per cent of your limit to show creditors you can responsibly handle access to credit when you have it.

Also, don’t be afraid to check your credit score, Lofeudo said. If you have a good credit score, a “hard check” that a bank does when you apply for a loan might bring it down by about three points, but it will go back up in 30 days. Meanwhile, “soft checks,” such as looking up your score online, have hardly any impact if done sparingly.

Lofeudo said when applying for mortgages, lenders won’t qualify someone for a home loan if they carry a lot of credit-card or other consumer debt, such as a car loan. He agreed that student debt is not something to worry about because lenders view investments in education positively.

If managing your debt still seems overwhelming, Moorhouse said the best thing to do is dedicate time to learning, which helped her demystify the topic and launch her own career in personal finance.

“That will make you feel more comforted and empowered … about how things will improve in the future,” she said.