How financial literacy can transform Gen Z’s mental health

Providing teenagers with the knowledge and skills to navigate personal finance empowers them to manage financial stress

Gen Z is wholly unprepared for dealing with any of the financial aspects that require their understanding. Alamy

Gen Z has the highest rates of stress, anxiety and depression compared with any other generation. Factors for this range from increasing social media usage, the Covid-19 pandemic, high academic pressure and financial stress.

While many of these issues are deep-rooted and complex to solve, at least one problem is relatively easy to tackle – helping them to effectively manage financial stress.

Young people today have good reason to be stressed about money: Due to the volatile state of the global economy, they are entering a tough economic landscape. The rising cost of education, the highly competitive job market and the increasingly complex financial landscape only add to this stress.

An expensive omission

The majority of Gen Zers not being taught even basic financial literacy is what makes this issue catastrophic. They are wholly unprepared for dealing with any of the financial aspects that require their understanding.

From student loans and credit card debt to predatory lending and financial scams, this lack of knowledge and awareness will prove extremely expensive, not least because of the effect it will have on their psychological and emotional well-being.

Being financially literate – understanding key personal finance concepts and being able to make smart money decisions – gives these youngsters three things they crave: clarity, control and confidence. This goes a long way to bolster their sense of empowerment and plays an important role in their mental well-being.

A crucial link

Research published by the Journal of Financial Therapy found that those with lower financial literacy were more likely to experience financial stress, which harmed their mental health. There are vast amounts of data showing the correlation between improving financial literacy and better mental health outcomes.

This link is especially crucial for Gen Z as they build good financial habits that will hold them in good stead in the future and help them to avoid common financial pitfalls, whether it’s living beyond their means, taking on excessive debt or investing recklessly.

Each of these pitfalls has a toxic fallout and the potential to permanently derail their lives.

Being financially literate gives them the skills they need to navigate financial quagmires prudently. This has the follow-on effect of affording them financial stability and security, which, in turn, does wonders for their mental health as it fosters a sense of agency and resilience.

Long-term planning

Gen Zers are anxious about their future. The blinding pace of technological and social change makes it difficult to predict the future, much less prepare for it.

The financial aspect of their future is one they find particularly worrisome, given that they lack the knowledge and skills necessary to budget, save and invest.

These Gen Zers then find themselves constantly living in a state of financial uncertainty. This uncertainty can cause significant levels of stress and anxiety, as they worry about their financial stability and their ability to achieve their goals.

Without a plan for the future, many young people have feelings of hopelessness and a lack of control over their lives, leading to a decline in mental well-being.

Giving Gen Zers critical financial education at this stage of their lives gives them the competence and the resulting confidence to make good money choices.

Financial literacy provides a foundation for making wise financial decisions, planning for retirement and building a financial safety net.

This long-term security can contribute to improved mental well-being, as people feel more prepared and confident in their ability to handle financial challenges that may arise.

Empowerment and self-esteem

Financial literacy promotes a sense of empowerment and self-esteem. When these Gen Zers understand and take control of their finances, they experience a greater sense of mastery over their lives.

This sense of empowerment can positively affect mental health by fostering feelings of self-worth, autonomy and a sense of accomplishment.

It also helps immensely in relationship dynamics. Financial difficulties can strain relationships and contribute to mental health issues.

Financial literacy plays a crucial role in fostering healthy financial communication and joint decision-making within relationships.

When couples or families have shared financial literacy skills, they can effectively collaborate on financial goals, reduce conflicts related to money and create a supportive financial environment that can boost mental health.

The transformative power of financial literacy on Gen Z’s mental health cannot be overstated.

By providing them with the necessary knowledge and skills to navigate personal finance, we empower them to manage financial stress, plan for the future and make informed financial decisions.

This empowerment contributes to improved mental well-being, fostering a sense of control, resilience and self-esteem.

Investing in financial literacy education for Gen Z is an essential step towards supporting their long-term financial and mental well-being.

Marilyn Pinto is the founder of KFI Global