Generation Z: The New Architects of Global Economy and Their Journey Towards Financial Literacy
Even though you probably do not realize it, today’s youth is getting more and more involved in the global economy, not only as passive observers, but also as active game changers, especially when it comes to commerce. Nowadays, trends set by social media impact supply and demand rates around the world. It is highly unlikely that a teen from 13 to 18 years old has not made an impulse purchase with the phrase "tik tok made me buy it" in mind. Undoubtedly, social media platforms have become one of the most influential factors in global commerce. A clear example of this has been the growth of aesthetics on Tik tok. Over the years, there have been the VSCO girl aesthetic, coastal grand daughter, and preppy, all of which require you to consume clothes, bags, shoes and other objects to be a part of the latest fashion. These trends may seem inoffensive, but they have a huge impact on the global economy.
"From rising interest rates and runaway inflation to supply chain disruptions and geopolitical instability, 2022 was a turbulent year. As we move further into 2023, a tightening economic environment and fears of recession continue to cast long shadows" (worldfinance.com). Since the end of the pandemic, several nations have faced skyrocketing inflation rates and some have entered a scene of possible economic recession, especially the European union. In most of these countries, the inflation was a demand pull inflation, which means it is inflation caused by a drop in demand. Having this in mind it is possible to understand how teenagers and young adults can use the influence they have over supply and demand rates across the world to better their nations demand pull inflation scenarios. Despite being a small change, it will still generate an impact on the economy.
The rise in the inflation rates has an effect not only on the global economy but also on teens’, young adults’ and adult lives. This happens because the demand pull inflation increases the prices of consumer goods, forcing people to generate more money in order to buy simple goods and services. Furthermore, the inflation rates do not only influence obvious aspects, but also the price teens pay for tuition, housing and even what they earn from their jobs. For example, inflation impacts universities’ revenues leading them to increase their tuition fees to make sure their institutions first survive and then continue to be profitable. According to a recent report from Georgetown University, in the 40 years between 1980 and 2020 the cost of going to college - including room, board and tuition- increased by a staggering 169%, and from 2019 up to nowadays the total price of attending has increased over 33,000 dollars. Furthermore, sudden price hikes are not only prejudicial to them as individuals but to society as a whole. When youngsters are priced out of educational services they are not able to afford college or university courses , meaning fewer people have access to one of the most efficient tools for social mobility.
Moving on, with young people’s important role as game changers in the current global economy, it’s time they leveled up the game in their personal lives by controlling their finances. There are several positive effects of starting your investments at a young age. Primarily, compounding, which Albert Einstein described as the eighth wonder of the world. It is the art of reinvesting money that was earned from a previous investment and is one of the major advantages that all young people have over their parents. Why? Time is on their side. The longer they invest, the more their capital will compound.
An example of compounding would be a $10,000 investment at age 20 growing to over 70,000 dollars by the time the investor was 60 years old (based on a 5% interest rate). However, that same $10,000 at 30 would only generate 43,000 dollars by age 60. The longer money is put to work, the more wealth it can generate. (Investments do not necessarily need to start at ten thousand dollars, this was just an example of a real-world compounding investment. $1000, $100, or even $10 is just fine)
In the financial market, there are several different types of investments to choose from. This diversity allows for a diverse range of products making it possible for people that have $20 to invest, and at the same time people with $20,000. It is totally possible for young adults with a limited amount of money to begin investing, especially when they understand the art of compounding their money.
One type of investment for the youth is certificates of deposit (C D'S) - a lower-risk type of investment. CDs can be offered by banks or businesses. The way they work is that you lend your money to the business or bank which gives it back to you, in a previously agreed amount of time, with interest added to it (previously determined in a contract). So what’s the catch? It locks you in for a certain time during which you can’t touch that money or else you will face a penalty (fee). But, if you can wait for this period to end, you will receive your money back with interest added to it. Your money starts earning interest from day one and every day after that your money compounds. On day one you may have started with $100 but on day 2 you will already have increased your original capital thanks to the interest paid and on day three the interest is paid on your new total.
Finally, another option of investment is traditional stocks, in which you buy a stake in a company. You then hold the share until you decide to sell it - hopefully for a profit if the company has performed well and the share price has grown. Bear in mind that its growth is not guaranteed and this type of investment is riskier than CDs. It is possible to invest in stocks with a small amount of money. Some examples of stocks under twenty dollars are Krispy Kreme Inc. (ticker: DNUT) with a year-to-date return of 50.3%. Also, LegalZoom.com Inc. (LZ) with a year-to-date return of 61.1%. There are countless stocks to choose from that cost the same as the examples given or even less, however, before investing in these, it is necessary to understand the background of the business and its opportunity for growth.
One of the biggest problems with the present generation Z is patience - or rather lack of it. Stemming from the constant use of social media such as tik tok and Instagram, this access to content that brings a constant flow of rapid information to the viewer has bred a culture of immediatism. However, one of the most relevant aspects of a successful investment is time. Stocks can gain value over time yet most of the time teens do not want long-term investments even though in most cases these are, in fact, the investments that have the greatest most consistent returns.
Simply making use of social media has transformed teens and young adults into game changers in the global economy, wielding the power to influence supply and demand strands all around the world. If they keep in mind the concept of self-interest created by Adam Smith and work for their own benefit in personal finance, they will be helping the global economy to be more productive and this way is more efficient. The challenge is to overcome the immediatism created by social media and develop a long-term mindset when it comes to their personal investments.
