At 25 years old, John Darby reflects on the 2008 financial crisis as the pivotal moment when his parents first expressed concern over finances. Having been only 9 at the time, he believes it left a significant mark on him and his peers, driving them toward saving habits. In 2021, Darby started setting aside 10% of his income for his retirement.
“That’s truly what has inspired us to be more diligent about saving,” explains Darby, who works as a client service associate at Graham Capital Wealth located in Tampa, Florida.
Generation Z, generally categorized as those born from 1997 to 2012, is indeed driven to save. According to a report by Vanguard, they are engaging with their 401(k) plans at rates surpassing those of millennials (individuals born from 1981 to 1996) during their entry into the workforce. In 2021, a remarkable 62% of workers aged 18-24 were making contributions to 401(k) plans, which is over double the participation rate (30%) from the same age group in 2006. This trend contradicts the narrative that younger generations save less than their older counterparts.
Where Gen Z invests their money
Not only are Gen Z individuals saving through retirement plans linked to their employers, but a distinct Fidelity study has shown that 77% of Gen Z women and 74% of millennial women have investments in the stock market, which encompass their 401(k)s, individual securities, bonds, real estate, and cryptocurrencies. Gen Z women allocate 10.4% of their earnings towards investments beyond retirement savings.
Social media distinguishes Gen Z from previous generations, particularly millennials, in terms of saving and investing approaches, claims Kara Brockmeier, a 37-year-old certified financial planner with Premier Financial Partners based in St. Louis, Missouri. For millennials like Brockmeier, social media was just beginning to rise in popularity as they joined the workforce. Back in those days, platforms like Facebook primarily served as spaces to catch up on friends’ activities rather than venues for sharing financial advice and resources, she notes.
Many of Brockmeier’s clients from Gen Z arrive with substantial financial knowledge. “They seek someone to discuss concepts with more than previous generations, who tended to need more direction,” she says.
Here are six significant factors contributing to Gen Z’s heightened propensity for saving compared to older generations.
1. Money is no longer a taboo subject
Money was often a sensitive issue, particularly for women, rarely discussed at home, says Lorna Kapusta, head of women and engagement at Fidelity Investments. However, this has evolved as more individuals, especially among Gen Z women, openly converse about their earnings, investment choices, and strategies. “Gen Z women increasingly appreciate that investing—whether for retirement or otherwise—is a way to achieve generational wealth,” Kapusta states.
2. Investing has become simpler
In recent years, the investment sector has made strides toward education and accessibility for all, according to Kapusta. Numerous firms have lowered the threshold for investing, allowing individuals to start accounts with as little as $1 and eliminating commission fees. Furthermore, there’s an abundance of informational resources, such as webinars and podcasts. For example, Fidelity’s Women Talk Money community and its webinar series, aimed at addressing the unique financial needs of women, are open to everyone, not just clients.
3. Automatic enrollment in 401(k) plans
The report from Vanguard highlighted this factor as key to the elevated number of Gen Z investors. In 2006, only 11% of employers in their research implemented automatic enrollment. However, by 2021, nearly half of the retirement plans had adopted this approach.
An increasing number of companies are incorporating auto-enrollment in their 401(k) plans, thanks to the Secure Act 2.0, a federal legislation enacted in 2022 that mandates new 401(k) and 403(b) plan sponsors to automatically enroll eligible workers starting in 2025. Additionally, changes in state laws have contributed, as 17 states now have regulations facilitating state-sponsored retirement plans, observes Steven Calio, CEO and co-founder of CSG Financial in Dover, Delaware. He anticipates this number will grow over time.
Gen Z (37%) and millennials (35%) are more inclined than Gen X (28%) and Boomers (21%) to indicate that their financial well-being has improved, according to a recent survey by Schwab. Auto-enrollment may be a reason behind Gen Z’s optimistic outlook on their financial situation, remarks Marci Stewart, director of client experience at Schwab Workplace Financial Services.
4. Matching contributions for student loans
Beyond automatic enrollment, some employers are beginning to offer matching contributions for student loans within their retirement schemes. For example, if an employee pays $500 monthly towards a student loan, the employer may treat that payment as an equivalent contribution to the retirement plan, providing a match in line with their 401(k) matching criteria, Stewart explains.
5. Advice via social media
Gen Z increasingly seeks financial guidance from platforms like Instagram and TikTok more than previous generations. “Finfluencers” frequently break down complex financial topics in engaging and easily digestible formats. However, Gen Z should ensure that the information originates from reliable sources, as 27% of Americans acknowledge falling prey to misleading financial advice shared on social media, based on a study conducted by Edelman Financial Engines.
“It’s important to investigate the qualifications of those providing advice,” Kapusta says, as “not everyone on social media making recommendations is certified.”
6. Investment apps simplify the process
In 2021, numerous novice investors profited from trading GameStop shares using the Robinhood app. Gen Z took notice and began downloading platforms like Robinhood, Fidelity, and E-Trade, according to Darby.
These applications enable Gen Z to manage their investments independently without incurring commission or brokerage costs, he asserts. Transitioning $100 or $200 from a bank account to an app to kick-start investing is straightforward, he adds. Investors can even acquire a fraction of an Apple share for under $50, whereas previously, purchasing a full share was a barrier for many due to costs.
This combination leads to an optimistic financial outlook among Gen Z compared to older generations, with many in this cohort aiming to retire by age 60, according to Stewart. In contrast, Boomers have a retirement target of 68 years old, while the average retirement age across all generations stands at 65.
Consider the financial capabilities of an individual in their early twenties who is knowledgeable about the financial planning resources offered by their employer, states Stewart. “The potential impact over a 30- or 40-year career, considering the power of compounding, proper goal setting, and professional oversight, gives me great hope for their future,” she concludes.
