Gen Z is proving to be ahead of the curve when it comes to investing. According to the 2024 Schwab Modern Wealth survey, Gen Z adults are starting to invest and save at an average age of 19. This is a stark difference from baby boomers, who typically began investing at the age of 35, and even from millennials, who started at 25. The early start for Gen Z has financial experts nodding in approval, recognizing the powerful impact of starting early on accumulating wealth.
One of the main factors driving the success of early investing is the power of compounding and time. Rob Williams, a certified financial planner and managing director of financial planning at Charles Schwab, highlights the significance of letting money grow and earnings compound over the years. Saving even a small amount today and allowing it to grow can result in substantial wealth in the long run.
For example, starting to save at 19 as opposed to 25 can make a huge difference in the final outcome. Assuming an annual contribution of $5,000 and an average annual return of 7%, an investor starting at 25 could accumulate around $998,000 by the age of 65. However, someone who starts at 19, contributing only $30,000 more over the years, could end up with more than $1.5 million. The impact of delaying even further, until 30, would result in only approximately $691,000. This disparity highlights the importance of early contribution in building wealth.
Experts recommend opening an individual retirement account, specifically a Roth IRA, as an easy way for young people to start building wealth. Roth IRAs allow you to contribute after-tax dollars and offer tax-free growth. The money can typically be withdrawn tax-free in retirement, making it a convenient and beneficial investment option for young investors. Ed Slott, an IRA expert and certified public accountant, suggests that every young person should consider Roth IRAs when they start working, as it sets the foundation for a long-term savings habit.
Accessibility of Financial Resources
Gen Z’s confidence in investing is attributed to the growing accessibility of financial resources. More than a quarter of Gen Z adults reported learning about investing in school, a higher percentage compared to millennials and Gen X. Additionally, the abundance of information available online and on social media platforms has equipped young investors with knowledge and tools that were previously unavailable to older generations. However, experts caution against solely relying on social media for financial advice and encourage seeking guidance from trusted financial advisors.
Despite the financial challenges faced by many young people, such as student loans, experts emphasize that it should not deter them from investing. While student loan debt can be substantial, it is essential to strike a balance between debt repayment and investing for future goals. Making the minimum payments on loans and starting small with retirement savings, even if it means setting aside a modest amount like $100 a month, can pave the way for long-term financial success. Waiting until debt is fully paid off to start investing may hinder wealth accumulation in the long run.