The importance of managing one’s personal finance from a young age is now more important than ever. Since the pandemic began, Malaysians have not just been falling victim to Covid-19, but to poor financial planning and scams as well.
For Generation Z, who are now old enough not just to make money but to invest it, financial literacy is crucial, be it to build a solid financial foundation to meet daily needs or even in striving for future financial goals. Of course, good financial literacy will ensure investors make informed decisions.
With online trading platforms attracting more retail investors, it should come as no surprise that more Gen Z are making their presence felt in the marketplace. Comprising of 18 to 24-year-olds, they are just beginning their personal finance journey.
Rakuten Trade Sdn Bhd’s (RT) Hooi Mun Keong and Stephen Yong from My Personal Finances (MyPF) weigh in on Gen Z, managing personal finance and equity trading tips.
1. What would draw or hinder the Gen Z when it comes to personal finance?
RT:
- For 18 to 24-year-olds, the words “personal finance” may sound foreign. While some of them have started earning an income or have funds in hand, they are often not sure what to do with the money.
- Other typical barriers usually associated with starting anything is the cost, confidence and education.
- Personal finance is often not taught in school because it is structured in a way where once we are out in the workforce, we only focus on earning money, not managing it.
- The appeal of personal finance on social media is because it is now so easily accessible. However, with the influx of information on the internet on personal finance, Gen Z are also more susceptible to shady targeted ads and dubious online finance gurus. When it comes to matters related to your money, the best choice would be to first determine whether the individual or the entity is licensed or not.
MyPF:
- It is positive to see an increase in interest in personal finance among Gen Z who are in college, university or working as a fresh graduate today. This is primarily driven by a desire to improve and better themselves. This period in their lives also involved a transition from being financially dependent on their journey towards being financially independent.
- While our own experiences with money make up only a very small percentage of what happens, it does significantly shape our thoughts and relationship with money. Peer influence whether online or in person, family, friends, and for those fortunate enough to have a mentor all affect and shape one’s view on personal finances.
- It can however be an area that is ignored or viewed as being irrelevant for some Gen Z. This happens when financial goals are too vague, far away or uncertain. For example, planning for retirement in 30 to 40 years from today may not appear relevant.
- Another difficulty faced in personal finance is when it seems out of reach. For example, financial information that are unnecessarily difficult or filled with jargon may be a turn off for Gen Z. It can also be a scenario where a financial goal seems impossible thus, they would rather not start at all.
2. How can Gen Z learn more about personal finance?
RT:
- I suggest searching on YouTube on how to adopt basic personal finance skills like budgeting and saving. The aim here is to identify disposable income available and then only determine the next step – how to invest it.
- Open conversations around personal finance with friends and family is also a step in the right direction. It facilitates discussion and insights being shared and learning along the way. This way you can embark on this journey to financial independence with a solid support system.
- If you’re already conducting social media searches, I recommend looking for hashtags like #personalfinance, #moneymanagement or #stockmarket. When considering courses, I suggest that when it comes to the stock market, to attend ones that are being conducted by individuals who are licensed financial advisors.
MyPF:
- There are a wealth of personal finance sites globally including Malaysia specific sites. Personal finance sites may be more general covering basic to advanced topics depending on your level of knowledge and interest areas in personal finance.
- If you are up for the challenge, financial and business news are a good read. While it may not make immediate sense due to jargon or unfamiliarity, hang in there and you will soon be able to.
- Books are a great resource as well as you learn from the knowledge and research of others. Some recommendations for Gen Z include The Barefoot Investor by Scott Pape, The Broke Millennial by Erin Lowry and Money Master the Game by Tony Robbins. Local books such as Money Smart by KC Lau and Millionaires are From a Different Planet by Azizi Ali are worth checking out too.
- Getting connected with a licensed financial planner can also be a great way to gain personalised knowledge and application in personal finances customised to your own personal situation. It is increasingly affordable as well to have a financial health check with a licensed financial planner.
3. Financial literacy is crucial to building a strong financial foundation. What good habits Gen Z should build in the pursuit of improving their financial literacy?
RT:
- I remember trying to read business news in my University days and it was a very daunting experience because of all the jargon.
- What I did was read selectively, particularly news on companies reporting their financial results and general discussions based on the industry themes. Take 10 to 15 minutes to digest it and if you encounter any terms you aren’t familiar with, look it up on Google.
- Many have taken to their smartphones and apps like IG and TikTok now more than ever. Since you’re already there, why not also browse content from IG accounts like @bursamktplc, @investsmartsc @rakutentrade and @mypf.my, which are filled with educational content on stock marketing investing and personal finance (not so much promotional materials like others are).
- Webinars are also being hosted via Facebook LIVE! Check out educational type sessions as they typically carry less jargon.
MyPF:
- Personal finance starts from having the end of mind. It is crucial to imagine the sort of life that you want to build and then work backwards to today. This helps you identify your personal finance goals, and what steps you need to take to get there. Review your personal finance goals regularly at least once a month (or even every week!)
- Start building up your own list of golden rules for personal finances. Note down personal finance advice that resonate and are relevant for you. This will be your guide in making personal finance decisions both big and small.
- Financial literacy is a journey. It requires discipline, consistency, and persistency in gaining knowledge and applying it. Also don’t forget to enjoy your journey and celebrate your wins!
4. Most Gen Z generally do not earn much, being at the start of their working careers or still in school. Can Gen Z start practising good financial habits with little money?
RT:
- Of course! Good personal finance starts with whatever money you do have. By properly managing your finances earlier rather than later, you can gradually build a solid financial foundation. Start with a small amount and build on it to ensure that you don’t fall prey to financial traps like lifestyle creep and debt when you start to earn more.
- If you’re already buying things online via ecommerce channels, then digitally trading companies you are already familiar with might be a good starting point. Stock trading is ideal for newbies looking for passive income but more importantly, it’s regulated by the Securities Commission of Malaysia.
- Signing up for a trading account is easy. All you need is a broker and a CDS account (the account that stores your stocks).
- Pro Tip: There are brokers out there that offer a waiver on the RM10 CDS account opening fee and who offer interest on un-used cash in the trading account. So, do look out for those brokers. That way you already have cash in hand while you’re getting ready to make your first trade.
MyPF:
- FinTech is proving to be a game changer in lowering barriers of entry and making financial solutions more accessible. This includes lower costs to invest, buy insurance, and even to engage a licensed financial planner.
- The rules of personal finance remain the same no matter whether you have a little or lot of money. It is just the numbers of zeroes that change in the game. It is less pressure to learn how to make better financial decisions even when starting with little money. Even if you make mistakes, you can learn valuable financial lesson and be able to catch up.
- Learn to live within your means. This means spending to cover all your needs and some (but not all) of your wants. This lets you learn how much you need for expenses and how to budget. Avoid lifestyle and spending creep when your income goes up by avoiding the temptation to spend lavishly more.
5. Most Gen Z generally do not have much savings, let alone dedicated investment funds. How much money or capital should a novice Gen Z retail investor need to start investing?
RT:
- While there is no magic number here, I would say somewhere between RM100 to RM500 would be a good start.
- The most important thing is to make it a routine. Like a relationship, there is no point in rushing into it if you’re not ready.
- For those just starting out, I suggest owning stocks from companies that you are familiar with. It could be a product or services that you use every day. For example, companies like AirAsia, Public Bank, Genting and Maybank.
- In addition to paying for the stock, there are brokerage and other fees that are charged on top of a trade.
- Ensure that the costs are not the biggest reason in determining whether you are making a profit or loss. Trading fees are now much lower with the advent of digital trading platforms. By going straight to the source (cutting out the middleman), it not only saves money, but time as well.
MyPF:
- One can get started investing from as low as RM100. While it may not be the optimum amount, it is more important to get your feet wet. There is no replacement for having skin in the game and actual investment experience.
- Ideally, you will want to get started by building up your backup funds of at least 3 months of expenses as a Gen Z before you focus fully on investing.
6. There seem to be more Gen Z retail investors buying and selling stocks online these days. However, there is also criticism that the Gen Z retail investor is too young and inexperienced and faces more risk in the stock market. Can you tell us what is driving the Gen Z to start investing despite their young age and relative lack of experience in trading?
RT:
- While Gen Z are young and inexperienced, it shouldn’t stop them from looking at ways to earn extra income by trading on the stock market, other financial instruments.
- Starting early gives more room to make mistakes, adjust and revise the strategy.
- Being digital savvy is also a plus because that means you have the choice to pay less on successful trades.
- Gen Z also lead a very social life virtually and in reality. This means that they have more access to educational materials and insights from the pros at their disposal.
- Gen Z traders have started reading and learning about the basics of personal finance much sooner than previous generations, something which could be attributed to the financial insecurity faced during the pandemic as they started to graduate into the working world. As investing is a key factor to financial stability, Gen Z is taking the risk to learn how to correctly invest and build long-term wealth.
MyPF:
- Investing has always been the sexier side of personal finances. And the area that catches the most attention from media. Newer investors in general tend to overestimate their own abilities thus possibly taking on more risk than they should. There is also no comparison to the experience one gains from going through a significant market crash.
- Overall, it is great that Gen Z investors are keen on making money. Do exercise prudence, continue learning, and avoid putting in money that you cannot afford to lose.
7. Growing up in an ever-changing world that is witnessing the heights of digitalisation, what are some tips or advice for the Gen Z retail investor to navigate the potential volatility of the stock market?
RT:
- Volatility can be your friend.
- If you invest in fundamentally strong stocks, even when there is volatility, the market will eventually catch up with the stock’s value. The emphasis being on fundamentally strong companies.
- Losses are bound to happen. We cannot eliminate the risk of loss completely. However, we can manage it, which is why knowing when to cut your losses is just as important as knowing how to make a profit.
- Before making a trade, you should determine 3 prices: the entry price, when you buy your stock, your stop loss price, which is how low a stock goes before you cut your losses, and your take profit price, which is the price at which you sell your stocks and collect your capital gains.
- Diversifying the stocks that you invest in will also help you more safely navigate market volatility. When your stocks are spread over several sectors, if one sector is not performing well, only some of your stocks will be impacted, minimising your risk of loss. This also applies to diversification across different regions. Rakuten Trade will be offering trading in the US market soon by end of the year. So, stay tuned!
MyPF:
- Recognize that every investment carries risk. Know your exit strategy before you even start investing. Look at not only your potential gains but also the potential downside.
- Diversify your investments to reduce the volatility of your investments. Build up an investment portfolio with an asset allocation strategy that covers not only stocks but also bonds, cash equivalents, properties and alternative investments.
- Your investor psychology is also one a key area to gain mastery. If you are unable to handle your emotions, it can cloud your decision-making process and may cause you to tilt or make rash bad decisions.
8. With the influx of information on the internet, how can Gen Z retail investors identify credible information for market and company insights?
RT:
- With the rise of the so-called stock trading gurus on the internet and on social media platforms, it is easy to be tempted by the promise of easy returns and gains.
- Investors should question the information out there and not just follow and execute any money related decision blindly. Be careful when conducting research as dubious sources would not have their best interests in mind. The keyword here would be ‘licensed’.
- Broker reports are a good start. The Research Team in Rakuten Trade (licensed by SC) provides daily reports which can be accessed for free by traders.
- Some listed companies are also making the effort to actively engage with retail investors through regular webinars. This is another good resource in making investment decisions. Investors are heavily advised to only follow stock recommendations from licensed representatives.
MyPF:
- If something sounds too good to be true, it probably is! Anything that promises overly high returns should be approached with caution. There are increasingly complex and convincing scams masquerading as investments. Check the Securities Commission’s Investor Alert List for an updated list of unauthorised websites, investment products, companies, and individuals before investing.
- Know that not all information published online is true. Only trust reputable market and company insights such as from the Research Team by Rakuten Trade.
