Gen Z taps into investing's magic for wealth building, advisor explains

Gen Z is embracing the transformative power of investing to foster wealth accumulation, as elucidated by a financial advisor. This generation strategically navigates investment opportunities, leveraging them to achieve financial growth and security. The advisor sheds light on how Gen Z's proactive approach to investing aligns with their long-term financial goals, highlighting the innovative strategies they employ to build a robust financial foundation early in life.

KEY POINTS

• On average, Generation Z starts investing at age 19, much earlier than previous generations. 
• Saving $5,000 annually starting at age 19 could potentially increase retirement savings by $500,000 compared to starting at age 25. 
• The majority of Americans rely more on advice from advisors and accountants than on information from social media finance influencers.

Boston Brand Media brings you the interesting news on Gen Z - Gen Z is initiating their investment journey early—a strategic advantage, experts affirm.

According to the 2024 Schwab Modern Wealth survey, Gen Z typically starts investing and saving at age 19. This contrasts sharply with baby boomers, who began at around 35, and even millennials, who typically started at 25.

Rob Williams, managing director of financial planning at Charles Schwab and a certified financial planner, emphasizes the transformative power of early investing: "The magic of investing lies in starting early and leveraging compounding over time. Even modest savings today can grow significantly through compounded earnings over the years."

Schwab surveyed 1,000 Americans, ages 21 to 75, in March. Gen Z includes people born between 1997 and 2012.

The financial benefit of starting to invest early

Time plays a crucial role in investing outcomes. A teenager who starts a retirement savings account stands to accumulate significantly more wealth compared to someone who begins in their 20s.

For instance, investing $5,000 annually at an average annual return of 7% until retiring at age 65 illustrates this impact. Starting at age 25 could potentially result in approximately $998,000. In contrast, starting at age 19—contributing just $30,000 more—could yield over $1.5 million. Waiting until age 30 would result in around $691,000.

What share of U.S. adults are currently investing and when did they start?

Boston Brand Media also found that, experts recommend a straightforward method for young individuals to build wealth: opening a Roth IRA, where contributions are made with after-tax dollars. Roth IRAs offer tax-free growth, and withdrawals in retirement are typically tax-free.

According to Ed Slott, an IRA expert and certified public accountant, every young person starting their first job should prioritize Roth IRAs if eligible, or Roth 401(k)s. Establishing a Roth IRA early encourages consistent savings habits, fostering long-term financial security as individuals witness their accounts grow.

Trust advisors, not TikTok

Gen Z's confidence in investing largely stems from increased access to financial education resources, notes the Schwab report. Over a quarter of Gen Z (28%) learned about investing in school, compared to 19% of millennials and 12% of Gen X.

The internet and social media provide abundant investment information, a resource older generations lacked at such a young age. Nevertheless, experts caution relying on trusted financial advisors over social media advice.

"There's a wealth of information available, but it doesn't always translate to knowledge or the necessary context," explains Williams. "It's akin to choosing between an appealing yet potentially unhealthy market trend versus a balanced, sustainable approach to building long-term wealth."

The survey indicates that most Americans are disregarding finance influencer content on social media. Approximately 76% of Schwab survey participants stated they do not follow any finance influencers, and 65% noted that social media does not influence their investment decisions. Overall, respondents expressed a greater preference for consulting a financial advisor (57%) over relying on social media platforms (42%) for financial advice.

Should people with student loans be investing?

Many young people are increasingly worried about student loans. As of the second quarter of 2024, U.S. Department of Education data reveals that borrowers under 24 years old hold a combined federal student loan debt totaling $99 billion among 6.8 million borrowers. This figure rises significantly to $490 billion for 14.8 million borrowers aged 25 to 34 years old.

Despite the burden of student loans, experts advise against letting them deter investment efforts.

Ed Slott emphasizes that waiting until debt-free status is achieved would paralyze any financial progress. Instead, Rob Williams suggests a balanced approach: making minimum loan payments while starting modestly with retirement savings, even if it's just $100 monthly.

Williams highlights the gradual benefits: as loan payments decrease, more funds become available for savings, enhancing both financial stability and future prospects.

For questions or comments write to writers@bostonbrandmedia.com

Source: CNBC‍