The term ‘Gen Z’ refers to people born between 1995 and the early 2010s. Older Zoomers have completed their formal education, entered the job market, and are making their impact on the world. Researchers have found that this tech-savvy group is eager to invest and will even take personal loans to do it.
The figures from their study show a very clear trend: 4 out of 5 Gen Z investors did not invest with their savings but with cash borrowed from a loan company. They have bold visions, too, with almost half of that group borrowing US$5,000 (SG$6,750) or more to fund these investments.
Almost two-thirds of those who borrowed to invest found it to be a positive experience. They reported that they would definitely invest with borrowed money again. One-third said they would consider doing it once more but were not certain.
Where should Gen Z invest with a personal loan?
Close to 40% of investors in the research group said they borrowed money to invest in their own retirement fund. The rest were divided almost equally between participating in day trading and buying a particular stock. This indicates that Gen Z is future-savvy and more adept at planning for the days ahead.
1 in 10 of these investors also said that they used the borrowed money to invest in cryptocurrency. While this is a rather low figure considering that Gen Z has grown up in the digital age, it is likely to rise. Part of the reason for this assured growth is that social influencers are lending their voice to the crypto investment trend.
Between 50% and 80% of Gen Zoomers who own smartphones also use it for mobile banking. This figure is only going to increase as the youngest of them are only about aged 10 today and still unable to operate independent accounts.
However, banks and licensed moneylenders can still advertise their personal loan rates to this adolescent group through apps and mobile ads. With bank names as familiar to them as popular apparel brands, these Zoomers will grow up more credit-savvy than any other generation before them.
This has already become evident from the financial decisions of current Gen Z adults. An increasing number are acquiring one or more credit cards as soon as they come of age, thus building their credit at the earliest opportunity.
Beware the pitfalls
Unfortunately, Gen Z also reported the highest rate of delinquencies (defined as instalments being 60 or more days overdue) in the US. This is a crucial factor because loan defaults can stay on an individual’s credit report for many years.
Since the oldest members of Gen Z are just dipping their toes in the housing market, they are more likely to face an uphill battle for approval and competitive interest rates.
With this in mind, it follows that a personal loan from a loan company may be a better choice than one from a major bank. Licensed money lenders in Singapore offer low personal loan rates and more flexible eligibility criteria than their bigger counterparts. Moreover, money lender loans are just as effective at raising credit scores as bank loans.
Zoomers should not regard that as an excuse for poor financial decisions, though. By balancing both early access to credit with responsible debt management, they stand to get the best of both worlds.
Still Uphill
While older members of Gen Z are already enjoying widespread loan approval from major lenders, most of their younger brethren will struggle to do so. The latter simply have not built a credit history strong enough to warrant it yet.
The research puts this in perspective: almost a quarter of those who borrowed to invest got the money from their parents, another close family member, or friend. While the reason for this decision (rejection from lenders or choice) was not revealed, it does indicate that Zoomers will have to proceed with caution.
Both big and small lenders are eagerly vying for the lucrative Gen Z market. It seems that the biggest decision Zoomers face is whether to apply for personal loans from a private money lender or bank. That decision should only be made after careful deliberation of their options.
