If you're a millennial or Gen Zer, you're part of a group of powerful and influential consumers. Recent data reveals that by 2029, millennials and Gen Zers will make up 72% of the world's workforce.1 Being part of these two generations also means you make up about $350 billion of spending power in the U.S. alone.2
But wielding so much purchasing power—and seemingly infinite spending temptations—could mean spiraling into a debt trap. Here are six ways you can learn to spend within your means, which can ultimately help you form positive money habits and boost your financial wellness.
1. Know the Difference Between Debit and Credit Cards
A recent survey points to the fact that 32% of Gen Zers have trouble deciphering the difference between debit cards vs. credit cards.3 Not knowing the difference between the two could mean piling on debt unexpectedly. But knowing the difference could help you stick to your budget.
They sound the same, but they work quite differently. For starters, a debit card is linked to your bank account. When you use a debit card, you're spending money that you already have in your bank account. You can't spend more than what's in your account. If do you, you'll likely need to pay an insufficient funds fee.
A credit card, on the other hand, is linked to a line of credit. When you use a credit card to make a purchase, you're accessing money that you don't currently have and will owe to the credit card issuer at the end of the statement period. If you keep a balance, you'll be on the hook to pay it off later—with interest. Should you fall behind or miss credit card payments altogether, it could hurt your credit score, which also impacts the interest rates and terms you get for credit products.
And while you need to be at least 18 years old to open a bank account on your own (you can be younger if you open a children's bank account with a parent), you can be 18 and apply for a credit card, but expect to go through some rigorous requirements.
2. Keep an Eye on Your Digital Wallet Spending
Digital wallet spending is on the rise—65% of young millennials and 57% of Gen Zers owned a digital wallet in 2021.4 And the "click happy" nature of buying something on your phone and the ease of contactless payments can also make it far too easy to overspend. To prevent yourself from buying more than you can afford, aim to keep it simple. Instead of several digital wallets on your phone, have one. That makes it easier to keep track of where your money is going. Along the same lines, link a single card to your wallet.
Last, set up notifications. Many credit card issuers make it easier for you to get pinged via text or email every time you make an in-store or online purchase.
3. Use Buy Now, Pay Later Plans With Care
There's a lot to love about buy now, pay later plans (BNPL). No interest or fee plans. Payments spread out over several installments. No lengthy sign-up process. These all make it possible to enjoy making larger purchases—especially during sky-high inflation.
However, because you can sign up for multiple BNPL plans at once, you could end up with more payments and debt than you can handle. Before you click on the BNPL plan button for those fancy yoga pants or sleek new gadgets your favorite influencers are flashing, hit pause. Do the math and see exactly how much you owe and when payments are due. If you're on more than one BNPL plan, make sure you can afford the payments.
Find yourself in a BNPL frenzy? It happens to the best of us. Take a breather and commit to pausing on any big-ticket purchases until you're caught up. There's no point in falling into the influencer hype and buying the new "it" product all the time, especially if your wallet is hurting because of it.
4. Crush Your Current Credit Card Debt
If you have looming credit card debt, debt fatigue is the real deal. According to recent data, the average credit card balance for Gen Zers increased from $1,947 in April 2020 to $2,443 in January 2022—a 25.5% rise. The average credit card balance for millennials increased by 13.8% within that same time frame.5
If you can, consider aggressively paying off your credit card debt. Two popular approaches to paying off debt are the snowball and avalanche debt payoff methods. Before you decide on an approach, tally the balance and interest rate on each card. Then, determine what method you'd like to use to tackle your credit card debt.
- • With the snowball method: Focus on aggressively paying down the card with the lowest balance, while making regular payments on any other debts. Once that's paid off, focus on the card with the next highest balance. The benefit is that you'll pay off the first balance quicker, which can build momentum and motivation.
- • With the avalanche method: Pay down the card with the highest interest rate, while making regular payments on any other debts. Once it's paid, work your way down to the credit card with the second-highest interest rate. The main advantage of the avalanche method is you'll be saving on interest fees.
Don't forget to curb putting more purchases on your card, which would only put you in a deeper debt hole. Unlink your cards from your digital wallets, and temporarily freeze your credit card account if needed.
5. Practice Mindful Consumption
Take it from your favorite TikTokers on your #moneytok feed. We're all prone to spending habits that lead to waste or unnecessary buys.
Do this instead:
Return unused items you bought
Does this sound familiar? There's a good chance that that sweater that was two sizes too large or the bags of tea candles you accidentally bought multiples of are sitting in a darkened corner of your closet, collecting dust. If you purchased something online, there's a greater chance the item is left unreturned. To put that cash back into your pocket, step foot into the store or print out the return label from the online retailer. The small bit of effort you put into returning something you don't need can make a difference money-wise.
Nix recreational shopping
We've all been guilty of keeping a shopping browser open to take a break from work or school or making a quick run to our favorite big-box store or discount retailer to indulge in retail therapy. There are actually psychological underpinnings to why we might enjoy retail therapy or start to shop as a hobby. Shopping can give us a dopamine high, offer a sense of control, and stimulate the senses, which can distract us from anxiety, stress and other negative feelings.6
Next time you feel the tug to shop recreationally, do something that could be equally relaxing and fun but won't burn a hole in your pocket. Go for a walk, play with your cat, doodle, chat with your friends or meditate.
Prioritize needs versus wants
It's natural to want your IG and TikTok feeds to resemble the fabulous lifestyles of your favorite influencers. But justifying a new outfit for every party or concert could lead to spending money you don't have.
Instead, separate needs from wants. What is a necessity and what is a nice-to-have? For instance, you can focus on staples—think clothing you adore and will wear repeatedly—and mix and match. Or do a clothing swap or borrow some fun pieces from a friend with the same taste and size as you.
6. Save for Your Financial Goals
If you feel like the cards are financially stacked against you, you're not alone. According to a recent survey, 46% of Gen Zers and 47% of millennials live paycheck to paycheck and are concerned about not being able to cover living expenses.7 Despite looming worries, one of the best things you can do for yourself financially is create a plan for your savings goals, both short- and long-term. Here's how to set yourself up for success:
- • Open a high yield savings account. A high yield savings account is a type of savings account that offers better-than-average interest rates on deposits. It's an ideal place to park your savings and watch the money grow risk-free. You can open a Vivid Crest Bank high yield savings account online. Plus, there's no minimum deposit, no minimum balance and no monthly fees.
- • Set up savings buckets. Once you set up your savings account, create savings buckets for each financial goal. For instance, you can set up a pet fund for your fur baby, another for a dream trip and a third for an emergency fund.
- • Automate your savings. The beauty of an automated savings plan is that you'll be making progress on your goals without having to take further action. You can think of it humming gently in the background, doing the work for you.
Last Word
Stepping up your money knowledge and taking action to change your spending habits means improving your overall financial wellness. This one-two punch can pave the way for a positive relationship with money for years to come. By spending beneath your means, practicing mindful consumption and staying on top of your financial obligations, you can avoid falling into a debt trap.
READ MORE: Infographic: How to Automate Your Savings
Sources/references
- Bailey, R. et al. (2020, May). ESG as a Workforce Strategy. Marsh McLennan.
- (2020). 2020 Consumer Buying Behavior Report. Intelligence Node.
- (2021, April 1). Survey Finds Gen Z Lacks Knowledge and Confidence in Personal Finance and Investing. PR Newswire.
- Streeter, B. (2021, May 27). Future of Mobile Wallets Uncertain as Growth Flatlines. The Financial Brand.
- DiFurio, D. (2022, September 13). How Credit Card Usage Differs by Generation. Experian.
- (2021, January 21). Why Retail “Therapy" Makes You Feel Happier. Cleveland Clinic.
- (2022). The Deloitte Global Gen Z and Millennial Survey. Deloitte.