'Drivers License': A Wealth Strategist Helps Gen Z Hit the Road

Editor's note: This is the last of a four-part series about wealth planning for different generations. Part one was Talkin' 'Bout My Generational Wealth: Baby Boomers, part two was Come as You Are: Wealth Management for Gen X, and part three was Bouncing Back: New Tunes for Millennials Trying to Make It.

In the last months, I shared wealth planning tips for different generations. This final installment focuses on Gen Z — a generation especially dear to me as it happens to also include my children.

As I think about the financial journey that they are about to begin, I hear Olivia Rodrigo's "Drivers License" in my head, with themes of youthful exploration and the uncertainties that come with it.

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Generation Z, born from 1997 to 2012, is entering adulthood in a time of economic and global tremors, technological advancements and a very different career landscape than the one that generations prior faced.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Just as obtaining a driver's license symbolizes new freedoms and responsibilities, so does the journey toward financial independence.

'Work From Home': Embracing the gig economy

The rise of the gig economy is redefining traditional employment — leading many Gen Zers to work as freelancers, independent contractors or part-timers.

Some of this trend is by choice, and some is a result of the evolving employment market. Like everything, this move to the gig economy is going to provide workers with interesting opportunities, but some daunting challenges as well.

Without a steady salary that a typical full-time employer would provide, it is even more important for this generation to have a sound budget and financial plan in place. Two key considerations are:

Budgeting for variability. Establishing a monthly budget that accounts for fluctuating income is crucial. Allocating funds for essentials, savings and discretionary spending can help provide financial stability should income flow vary due to the nature of your work.

Building an emergency fund that could last for at least six months is a helpful benchmark.

Tax preparedness. Unlike traditional employees, "gig" workers must manage their own tax withholdings. Setting aside a portion of each paycheck for taxes is a prudent way to manage and prevent year-end tax surprises.

Note that in certain cases, they may need to make quarterly estimated tax payments throughout the year to avoid underpayment penalties. Therefore, it is not only about having the liquidity to pay the taxes, but also satisfying the timing of such payments.

When your income is variable, rather than a steady income stream, it can make it harder to manage your day-to-day life. A focus on sticking to a budget and making a financial plan is even more important.

The traditional ease of having a payroll system with automatic deductions is not available for those in this category.

Be proactive! A degree of discipline is required to ensure you're following your budget and financial plan.

'Good 4 U': Maximizing tax-advantaged accounts

Starting early with tax-advantaged accounts can yield long-term benefits.

Understandably, retirement may seem like a far-away idea for this generation just entering the workforce. However, the long-term benefits realized from tax-deferred or tax-free compounded growth are significant.

The earlier you start, the more you can maximize the benefits of these tax-advantaged accounts. Two possible considerations include:

Roth IRA. Ideal for young earners, Roth IRAs allow after-tax contributions to build future tax-free growth. These accounts have an income threshold by which one is prohibited from contributing.

In 2025, that income limit is $150,000 for a single person and $236,000 if you are married filing jointly. If your income is higher, there is a phase-out. So, with an income level of $165,000 or above (or $246,000 for married couples), you are prohibited from making a Roth IRA contribution.

Many early-career Gen Z individuals fall below these thresholds and should take advantage of this opportunity while it's eligible to them.

Health savings account (HSA). Another tax-advantaged account that may not be obvious is the health savings account, or HSA, which offers triple tax benefits — tax-deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses.

While many young people may not see a need for significant health care expenses on a yearly basis and may therefore assume that this is not applicable to them, a longer view is beneficial.

Having a conversation with your children about the costs associated with a serious health event (cancer, injury, etc.) can be illuminating for them.

HSAs can be flexible because the money held in the account can be invested and withdrawn later in life. With that perspective, an HSA is more like a "retirement" account for future health care expenses.

Note that HSAs are available only to those with high-deductible health plans, meaning a deductible of at least $1,650 for individual coverage or $3,300 for family coverage in 2025.

'When I Was Older': Illuminating retirement planning

The evolution of the employment market and compensation trends suggest that few Gen Zers will have a pension upon retirement.

Independent contractors and gig workers do not have the benefit of an employer-sponsored 401(k) plan or company contribution match. Therefore, this group may have to consider self-created retirement accounts.

In addition to the Roth IRA and HSA mentioned above, a SEP IRA and Solo 401(k) are also good options. The type of account will depend on your income level, contribution amount and your financial circumstances.

Regardless of the vehicle, it is important to be vigilant and make regular and consistent contributions. Without the (often) forced discipline of an employer-sponsored plan, where contributions are automatically drawn from a regular paycheck, the onus is on the individual to ensure proper funding.

'Save Your Tears': Understanding debt management

The rising cost of education has left many Gen Zers with significant student debt. Navigating student loans and other debts requires strategic planning about many factors, chiefly:

Loan awareness. It's essential to understand the terms, interest rates and repayment options of your student loans. Certain loan forgiveness and subsidy programs may be available, depending on your situation.

Although interest rates have risen in the last years, keeping an eye on the prevailing market interest rate is a good idea. If rates do drop, it could present an opportunity to consolidate student debt at a lower rate.

Interest deduction. Not all debt is equal. There is some "good" debt because it qualifies for a tax deduction.

For example, one may deduct up to $2,500 of student loan interest, with income phase-outs starting at $80,000 for a single individual ($165,000 if filing jointly) in 2025. The availability of a tax deduction reduces the effective cost of the debt.

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In contrast, interest on "bad" debt, such as credit card debt, is not tax-deductible. If cash flow is an issue, then repaying non-tax-deductible debt should be a priority.

'Truth Hurts': Prioritizing financial literacy

In this age of information overload, discerning accurate financial advice is vital.

Many young people in my kids' generation get their news and information from social media. Consider the rise of the so-called "finfluencer" — a social media influencer who offers financial-type advice.

Many apps and robo-financial platforms also provide basic financial information. If all else fails, there is also ChatGPT, which is readily available to answer almost any question. There is no shortage of "advice" one can get on this topic.

Financial literacy is more than knowing definitions — it is about creating an understanding about how financial rules and strategies apply to your situation.

It is, therefore, vitally important to verify information through reputable sources and consult with (human) professionals to understand the nuances when necessary.

I often remind young adults of a phrase I learned early on in my career … you don't know what you don't know. That is why it is critical to question what you read and see, verify information with trusted sources and seek out advice with a critical eye.

The bottom line for those in Gen Z? With challenges come opportunities.

Like all previous generations we discussed in this series, Gen Z will navigate the complexities of modern finance and find their own levels of growth and stability.

Just as that driver's license opens the road to new adventures, smart financial decisions will pave the way to a secure and prosperous future.

Wilmington Trust is not authorized to and does not provide legal or tax advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax adviser or other professional adviser.

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• Nine Key Tips Self-Employed and Gig Workers Should Know About Retirement
• Median Income by Generation: How Do You Compare?
• 10 Best Places For Gen Z To Buy A Home
• The Wealth-Building Powers of Health Savings Accounts (HSAs)
• A Little-Known Tax-Free Way To Help Pay Your Student Loan