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Updated December 25th, 2023 at 15:01 IST

The debt trap that awaits Gen Z: 4 things to look out for

Unlike previous generations, Gen Z faces unique economic challenges that may lead to a precarious financial future.

Business Desk
Financial red flags for Gen Z
Financial red flags for Gen Z | Image:Pexels
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As Generation Z is all set to enter the employment market and navigate the complexities of the modern world, with the older ones already creating a foothold, there is a looming concern about the potential debt trap that awaits them. Unlike previous generations, Gen Z faces unique economic challenges that may lead to a precarious financial future.

Not only have they dealt with vocational instability, but also witnessed the soaring cost of education. The cost of tuition, coupled with rising living expenses, often results in a significant financial burden that can take years, if not decades, to repay. And the facility to buy now, pay later has added onto more debt over their heads.

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This early accumulation of debt hampers their ability to invest, save, or make significant purchases like homes. The generation not only encompasses the new breadwinners and potential homeowners but also those who await their turn to enter the market. While a segment is struggling with debts and finance allocation, another is confused about which vocational course to go for. In this diversification, the risk of financial instability is what both of them share.

The pervasive influence of technology has not helped the cause, adding to the risk of the debt trap. The allure of consumerism, fueled by social media and online advertising, tempts Gen Z into spending beyond their means. Easy access to credit cards and the ability to make quick online purchases can lead to impulsive buying behaviors, contributing to credit card debt that accumulates rapidly.

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In the trend of fancy and lucrative advertising, here are four red flags to look out for:

Student Loan Debt: Many young individuals pursue higher education, often resulting in student loan debt. It's crucial for Gen Z to be mindful of the amount they borrow for education and to explore options for scholarships, grants, and part-time work to minimize the debt burden.

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Consumer Debt and Credit Cards: Easy access to credit cards can lead to impulsive spending and accumulation of consumer debt. Gen Z should be cautious about credit card usage, understand interest rates, and make efforts to pay off balances in full each month to avoid high interest charges.

Housing Expenses: As Gen Z enters the housing market, it's essential to be mindful of the costs associated with home ownership, including mortgages, property taxes, maintenance, and utilities. Taking on too much housing-related debt without a solid financial plan can lead to financial strain.

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Digital Financing: With the rise of digital financing options and "buy now, pay later" services, there is a risk of accumulating debt through online purchases. Gen Z should be cautious about taking on short-term debt for non-essential items and be aware of the terms and fees associated with such services.

To address these challenges, Gen Z must prioritize financial literacy and responsible financial management. Educational institutions, policymakers, and businesses should also work collaboratively to ease the burden of student loans, create stable job opportunities, and promote sustainable financial practices. By taking proactive measures, Gen Z can potentially avoid the pitfalls of the debt trap and build a more secure financial foundation for the future.

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Published December 14th, 2023 at 10:58 IST

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