Sound money habits lay the foundation for the next generation of wealth

Cape Town - How you spend your first pay cheque can shape your finances for years to come, improving your chances of a comfortable retirement and leaving something behind for your children. Financial discipline and sound money habits practised from ‘day one’ are essential building blocks for intergenerational wealth, especially for young professionals starting their first full-time job.

“The most valuable thing I do for young professionals is to help them set aside sensible amounts of their monthly income for expenses, savings and protection before lifestyle spending starts to outrun their means,” says Henri le Grange, a Certified Financial Planner® at Old Mutual.

Holistic financial advice for young professionals starts with a payslip, not a financial product. That payslip shows how much income is available at the end of each month after income tax and deductions for medical aid and retirement contributions. The near-term financial plan must then match that income to life stage events such as education, getting married, having a child, relocating abroad, starting a business or travel.

“Every plan I build for a young client has a one-page summary that they can read in two minutes; if the plan is not tied to a tangible financial decision they must make in the coming year, it is unlikely to remain relevant,” Le Grange says. Each advice interaction with a young professional is a potential ‘first step’ in a decades-long financial planning journey, but the starting assumptions behind that advice have changed.

Young professionals who fit in the Generation Z cohort face a different financial reality to that of their parents and grandparents. Getting a foot on the property ladder is more difficult, while building a career can be challenging in a competitive market defined by high levels of unemployment.

Financial advisers must be aware of these differences and adapt their advice and financial planning recommendations accordingly.

The ‘go to’ financial advice of a decade ago is no longer aligned with the younger generation’s views on debt and investing. Buying property as soon as possible worked for Baby Boomers and Generation X, but is less certain today. Home ownership ties up capital, reduces financial flexibility and comes with unexpected costs. Opting to rent may give young professionals the ability to build an investment base before taking on a major financial commitment.

It is also increasingly rare for an individual to spend three or four decades at a single employer, accumulating a substantial pension pot. “Young professionals are choosing to progress their careers through shorter stints with multiple employers; they need our help to ensure they preserve their retirement capital every time they change jobs,” Le Grange says. National Treasury’s two-pot retirement system has gone some way to addressing this issue, but discipline is still needed to leave the ‘savings’ pot untouched.

One of the tips to building long-term wealth is to resist the temptation to spend salary increases on cars, entertainment, holidays or luxury goods. “People who allow lifestyle creep to eat through extra income end up repeating the habit every time they receive a raise,” Le Grange says. One practical habit is to divert half of such increases to savings and investment. The amount may be small, but the discipline is rewarded over time.

Today’s young professionals have access to a staggering amount of financial advice and education online, from investment platforms to podcasts to social media and, more recently, artificial intelligence-backed tools such as ChatGPT and Claude. The challenge advisers and planners face is to help them convert this information into better financial decisions.

Le Grange believes that the challenge is not access to information but turning knowledge into consistent action.

A young client can read a hundred articles about investing and still never open an investment account.

Advisers must, therefore, find ways to translate the general advice in a podcast or YouTube video into actionable client-specific advice. They must then ensure that their clients stay the course through financial market volatility.

Digital tools can help turn information into action and reduce friction, but they cannot replace the human part of financial advising. Nobody should be driving to an office to sign a form, but conversations about why you cannot afford a new car, why your business idea needs a year of runway before you quit your current job, or how your family’s financial needs will be met if you are unable to work do not belong in an app. Young professionals need to have those tough conversations face-to-face with someone who has earned the right to tell things like they are.

The next generation of wealth will be built one good financial decision at a time. “The challenge is not how to reach young professionals, but how to empower them to stick to a sensible financial plan despite the financial noise in their personal lives,” Le Grange concludes. Successful advisers will grow alongside their clients, tailoring advice offerings to clients’ life stages and ensuring they are being advised rather than sold to.