John Darby, 25, remembers the financial crisis of 2008 as the first time his parents worried about money. Then just 9 years old, he believes it made a lasting impression on him and his generation, motivating them to save. In 2021, Darby began saving 10% of his salary for retirement.
“I think that’s really why it kind of pushed us into caring more and more about saving,” says Darby, a client service associate with Graham Capital Wealth in Tampa, Florida.
Gen Z (usually defined as people born between 1997 and 2012) is, indeed, motivated to save. They’re contributing to their 401(k) plans at higher rates than millennials (people born 1981-1996) did when they first entered the workforce, according to a Vanguard report. In 2021, 62 percent of workers aged 18-24 were contributing to 401(k) plans; that’s more than double the rate (30%) of the same age group in 2006. This bucks the trend of younger generations saving less than older generations.
Where Gen Z puts its money
Members of Gen Z aren’t just saving money in employer-sponsored retirement plans. A separate Fidelity study on women and investing finds that 77% of Gen Z women and 74% of millennial women own investments in the stock market, including their 401(k)s, individual stocks, bonds, real estate and cryptocurrencies. Gen Z women invest 10.4% of their paycheck outside of retirement funding.
Social media is what sets Gen Z and millennials apart when it comes to saving and investing, says Kara Brockmeier, 37, a certified financial planner with Premier Financial Partners in St. Louis, Missouri. Social media was just gaining popularity when millennials like Brockmeier entered the workforce. Back then, Facebook was a place to see “what your friends are up to,” not for sharing information and getting financial advice, Brockmeier says.
Most of Brockmeier’s Gen Z clients come equipped with financial information. “They just want somebody to bounce ideas off of more than other generations who might … want more guidance,” she says.
Here are six reasons why Gen Z is poised to save more than previous generations.
1. Money is no longer taboo
Particularly for women, money was a taboo topic and rarely talked about at the dinner table, says Lorna Kapusta, head of women and engagement at Fidelity Investments. But that has changed as more people, especially Gen Z women, are willing to discuss how much they earn, how much they invest, and where they are investing it, she says. “Gen Z women, now more than ever, recognize that investing—be it in retirement or outside of retirement—with any money that they have is a path to … generational wealth,” Kapusta says.
2. Investing is less complex
In recent years, the investment industry has focused on education and providing access to investing for everybody, Kapusta says. Many firms have lowered the barriers to investing by allowing people to open accounts with as little as $1 and by removing commission fees. There are also more sources of information, including webinars and podcasts. For instance, Fidelity’s Women Talk Money podcast, which focuses on the unique financial challenges facing women, is available to free everyone, not just clients.
3. Auto-enrollment in 401(k) plans
The Vanguard report cited this as a major reason for the high rate of Gen Z investors. In 2006, just 11% of employers in their study offered automatic enrollment. But by 2021, about half the plans did.
More employers are offering auto-enrollment in 401(k) plans because of the Secure Act 2.0, a federal law passed in 2022 that requires companies adopting new 401(k) and 403(b) plans to automatically enroll eligible employees starting in 2025. Another reason is state law changes. Seventeen states now have laws enabling state-sponsored retirement plans, says Steven Calio, CEO and co-founder of CSG Financial in Dover, Delaware. He expects that number will increase over time.
Gen Z (37%) and millennials (35%) are more likely than Gen X (28%) and Boomers (21%) to say their financial health has improved, according to a recent Schwab survey. Auto-enrollment could be one of the reasons Gen Z is more optimistic about its financial situation, says Marci Stewart, director of client experience at Schwab Workplace Financial Services.
4. Student loan matching
In addition to auto-enrollment, some employers are now offering student loan matching in their retirement plans. For instance, if you’re paying $500 a month on a student loan, your employer can recognize that payment as if you were putting that money into your retirement plan and provide a match based on their 401(k) matching formula, Stewart says.
5. Social media advice
More than other generations, Gen Z turns to Instagram and TikTok for financial advice. “Finfluencers” often explain important money issues in a fun and easy-to-understand way. However, Gen Z needs to make sure the advice is from a trusted source because 27% of Americans report falling victim to false or misleading financial advice on social media, according to a study by Edelman Financial Engines.
“Research the background of the person giving advice, Kapusta says, because “not everybody who’s on social media and making those recommendations is licensed.”
6. Apps make investing easier
In 2021, many amateur investors made money buying and selling GameStop stock on the Robinhood trading app. Gen Z took note and began downloading apps like Robinhood, Fidelity and E-Trade, Darby says.
These apps allow Gen Z to invest for themselves without paying a commission or brokerage fee, he notes. It’s easy to move $100 or $200 from a bank account to an app and start investing, he says. Investors can even buy 1/5 of an Apple share for less than $50, whereas in the past investors had to buy a full share, making it cost-prohibitive for many.
All of this adds up to Gen Z having more financial optimism than previous generations, with many Gen Z planning to retire by age 60, says Stewart. In comparison, she says, Boomers plan to retire at 68, while 65 is the average age of retirement for all the generations.
Imagine the financial power of someone in their early 20s who is immediately aware of financial planning solutions available through their employer, Stewart says. “The power of that over a 30- or 40-year career, given the magic of compounding, [plus] appropriate goal setting and professional management, makes me pretty optimistic about their future,” she says.
Photo from Andrey_Popov/Shutterstock.com
