Covid stimulus and Gen Z Americans: How the young can save and spend it

Now that the Senate has passed the $1.9 trillion Covid stimulus and relief package, financial experts have an important message for younger Americans who may be in line for an unexpected "windfall" in the form of a $1,400 payment: Don't be afraid to spend your Covid stimulus check on a vacation, new Apple device or flat screen television. 

That's the message from John Eringman, a 25-year-old self-taught personal finance guru who is guiding thousands of Gen Z and millennials through the ins and out of investing, saving and budgeting. It's okay to splurge on a gift, with one caveat: as long as you already have an emergency fund and are not saddled with debt. 

"It's definitely okay to spend a little bit on something you really wanted," said Eringman, one of the many Gen Z and millennials who have taken to TikTok to offer personal finance tips to uneducated peers. "But 80% of the money you get from the government should be saved or used to pay off debt."

With the new stimulus check on the horizon, many Americans are contemplating the best ways to save or spend the $1,400 slated to start hitting bank accounts within the next month. According to the IRS, roughly 159 million Americans received stimulus checks in the first round of payments last year.

President Biden said on Saturday after the Senate vote that stimulus payments should start going out this month to the over-85% of American households that are eligible.

For many individuals, there is no choice when it comes to use of stimulus: they need more help for reasons of financial insecurity and food insecurity. "This plan will get checks out the door starting this month to the Americans that so desperately need the help," the president said on Saturday.

According to a recent CNBC Invest in You + Acorns survey of pandemic finances, more than half of those surveyed (53%) said they needed another round of government stimulus; 29% said they need it just to "get by." Thirty-one percent of respondents say they've used previous government checks to cover everyday expenses, while 16% used previous checks to pay their rent or mortgage.

Most advisors encourage paying off debt, everyday expenses and building an emergency fund, and if possible, some recommend making long-term investments in the stock market. One thing is clear: they're worried about how Gen-Z, an age group generally lacking in financial literacy, will use what for many is a much needed helping hand. 

While not all members of the youngest adult generation in the U.S. (18 to 24-year-olds) may be eligible for a stimulus, many already received a previous stimulus check from the government and could use another one, according to the recent CNBC survey, conducted before the latest details on the stimulus package emerged by SurveyMonkey between Feb. 1-8 among a national sample of 6,182 adults.

Among Gen Z respondents, 64% said they need another round of stimulus, with 29% of those younger adult Americans saying they need it to "get by."

Forty-one percent of this age group has already received a stimulus check from the government as part of initial Covid-19 relief efforts. A quarter of those respondents spent the money on everyday expenses, a quarter saved it, 13% reported paying off debt and 20% paid rent or mortgage.

A combined 8% of Gen Z respondents said they spent the money on "something else" or "something special," a sign that some consumers have other priorities — these items included money for education, buying a car and getting teeth pulled, according to Erin Pinkus, a researcher at SurveyMonkey, who reviewed the survey results for CNBC.

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Sarah Newcomb, director of behavioral science at Morningstar, says it's okay to enjoy your stimulus check, so long as you have paid off any existing debt and hit a savings goal. She recommends individuals save at least 20%, and also stressed that it's important to have cash "on hand" for an unexpected expense.

Thirty-nine percent of Gen Z respondents to the survey said that if they had an unexpected $2,000 expense, they could tap savings to pay for it. Twenty percent said they would have to borrow from family or friends, 10% take out a personal loan, and another 13% said they "don't know" how they would cover the financial emergency. 

Newcomb, who has closely studied how consumers react to unexpected income, says age and experience play a big role in how individuals use "windfall" money. Those who grew up during the 2008 recession and came of age during the pandemic economy might be more risk-averse and likely to save after seeing parents or relatives struggle. Yet, at the same time, younger generations generally struggle to plan for the future, in part because many are still developing cognitively. 

"When we're younger the future feels farther away," said Newcomb, adding that saving is generally a hard concept to teach.

When they have questions about household finances, a combined 60% of Gen-Z turn to their mother or father, according to the survey, while 38% claim they self-taught the skills.

Twenty-seven percent of Gen-Z are also the primary decision-maker, which is much lower than other age group, but an indication that they are taking actions to "secure financial a future," Pinkus wrote in an email discussing the survey results.

According to a CNBC/SurveyMonkey study, a combined 51% of individuals between 55 and 64 and 60% of those 65 and up rate their financial literacy as excellent or very good. That drops to a combined 28% for the 18 to 24-year-olds. 

While financial literacy is generally seen as a necessary skill to teach younger generations, there's a disconnect within the education system. Eringman, who studied finance in college, never took a personal finance class. It took him two years to gain a solid footing of the topic, during which he listened to podcasts, read books and eventually began teaching friends and families. 

Faares Quadri, a current business student at University of Illinois at Chicago, says he took an elective personal finance course in high school and learned some skills from a professor, but most of the knowledge he offers to his more than 1.3 million TikTok followers was self-taught through YouTube and articles.  

"In finance they're teaching us stuff about how to value a company and ratios, but as far as financial literacy in everyday life, I wasn't taught it," Quadri said. 

Just 21 states nationwide require high school students to take a course that includes personal finance lessons.  

The lack of financial education in schools is a universal issue, which could have lasting repercussions, says Annamaria Lusardi, a professor of economics and accountancy at the George Washington University School of Business and the founder and academic director of the Global Financial Literacy Excellence Center. But it can't be a lesson only taught by parents or social media. Younger generations today are making more financial decisions regarding retirement and student loans than previous older generations.  

Newcomb encourages investing stimulus money, but she cautions joining the stock market without prior knowledge or research. Over the last two months, the retail investment craze shook Wall Street. Fueled by Reddit users and social media, and free trading accounts offered online by brokers including Robinhood, many new investors have looked to make quick buck.

"Just because you get extra money and hear about the stock market and it's easier to invest doesn't mean it's the right choice," Newcomb said. "People with no knowledge can get into complex investment strategies and get in deep over their heads, and that troubles me."

Twenty-two percent of 18 to 24-year-olds said in the last 12 months they bought a stock for the first time versus 10% of Americans overall, according to the CNBC survey.

Taylor Price, a 20-year-old TikTok personal finance guru says the retail investing trend and social media has shifted focus toward personal finance and motivated people more than ever to learn about investing.

Douglas Boneparth, a financial planner who works with young professionals, recommends taking care of obligations like rent and food, and using the money to bulk up savings. While there's no "one and done" solution, if consumers intend to use leftover stimulus money to invest in the stock market, he recommends they adopt a long-term growth strategy or contribute to an individual retirement account (IRA). 

Steve Chen, a 33-year-old social media guru who's built a personal finance following over social media among those 25 and under — about a third of which he'd define as "beginner investors" — encourages investing in exchange-traded funds. They lower market risk compared to individual stocks by investing in a sector or broad range of companies.

During the first round of stimulus checks he encouraged followers to spend on groceries and rent, and funnel some into an emergency fund that can last three to six months. He cautioned spending on burgers or Amazon purchases. 

"This isn't just free money, make sure you're using it wisely," Chen said. "It doesn't mean you can't rent a movie or enjoy life, but be more conscious of what you're spending it on."

This story has been updated to reflect Senate passage of the Covid relief package on Saturday and President Biden's remarks on stimulus checks after the vote.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.