Grads are ambitious to achieve financial independence, but most have no idea how to do it

It’s officially graduation season in America, and as hundreds of thousands of college students complete their studies, it is also the start of financial independence and management for many.

As grads get their career rolling, their financial goals also turn into bigger and more specific targets, like saving up for an emergency fund or retirement, paying off all student debts, and eventually exploring a sound financial footing. A new survey by Bread Financial shows that while the younger generation is keen to effectively use various financial skills, including personal financial management, budgeting, and investing, the majority are clueless about finding the starting point from where it all begins.

Some college students receive financial literacy as part of their education and are staying financially focused as they head out into the workforce. However, only 32% of grads claim they learned how to budget as part of their schooling, with very few students (26%) understanding need-to-know skills such as balancing a checkbook. This indicates that many states and institutions are missing the mark on foundational financial literacy. 

The younger cohort is impeded by a lack of financial education about handling finances broadly, particularly on how to properly use and build credit. As many as 43% think that having a full-time job, spending most of their allotted credit limit in a month (21%), and applying for multiple credit cards close together (18%) improves their credit scoring. Moreover, nearly one-quarter (24%) of this year's graduating class have never applied for a credit card.

Everyone is different and there’s no one size fits all approach when it comes to building credit. However, the longer a consumer’s credit history is peppered with on-time payments, the more potential they will have to raise their credit score. But what many young consumers find tricky is being approved to do so. 

There are a number of ways to begin building up a credit score, according to Nick Antonelli, CMO at Bread Financial. One of the first steps can be getting added as an authorized user on a spouse, partner, or parent’s card to establish a credit history. Once a credit history is established, the next step to follow can be applying for an individual credit card. After opening an account, a few foundational steps can help to build credit including paying monthly bills on time. Credit utilization also tends to play a significant part in building credit responsibly for new-to-credit consumers. New users are advised to use their credit lightly by keeping credit card balances at no more than 30% of the limits or setting up auto-pay reminders to never miss a payment leading to credit score drops.

Lately, TikTok has also emerged as an accessible place to learn financial advice in case Gen Z doesn’t see eye to eye on traditional financial tips. Moreover, many finance professionals are tapping the platform to create easy-to-understand content educating consumers on complex financial concepts including areas like budgeting and investment.

When it comes to budgeting, currently, one-third of Gen Zers don’t budget and spend more than they make. That may alter as many consumers indicate monitoring their finances more closely than before the pandemic – Gen Zers are increasingly learning from TikTok on how to create a budget and control their spending by carefully planning where every dollar goes.

“Gen Z has the opportunity to take advantage of the many resources available to them, from FinTokers to employers' benefits and materials related to financial wellness, including social media influencers like Taylor Price or John Liang, who offer financial advice in engaging and easily digestible pieces to improve their financial literacy,” said Antonelli.

When entering the workforce, graduates can also acquaint themselves with benefits besides salary — such as compensation packages, retirement plans, and health insurance extended by employers.

“In many ways, Gen Zers are relatively conservative with their money management. They witnessed the recession coupled with the economic impact of the pandemic and the firsthand importance of healthy financial habits. They are not overconfident but rather unsure and seeking out ways to improve their finances and where to turn for advice,” he added.

Money underscores the stress quotient for all Americans, but there exists a vast gender divide. The report highlights how women have historically struggled with financial health and confidence in comparison to men – 38% of women feel stressed about managing their finances after school, compared to only 21% of their male counterparts. 

Financial stress is felt by every generation of US adults, from Gen Z all the way up to baby boomers. While 32% of younger people are prioritizing becoming financially independent from their parents/guardians after college, an almost identical 31% are losing sleep due to worries about the same – since elevated student loan balances are also beginning to fall on the shoulders of Gen Zers.

As millions of new college graduates will set foot in the practical world, it could be years before they actually start leading a financially independent life – 87% of the graduating population looks forward to receiving some sort of financial help from their parents or guardians, and more than a quarter (27%) anticipate to have that support for as long as is necessary.