Gen Z is proving to be a generation that is ahead of the curve when it comes to investing. According to the 2024 Schwab Modern Wealth survey, Gen Z adults are starting their investment journey at the young age of 19 on average. This is a stark comparison to the baby boomers who began investing at an average age of 35 and even millennials who started at age 25. The power of time and compounding is a magical quality that can significantly impact wealth accumulation, making an early start advantageous.
The importance of time in investing cannot be understated. A teenager opening a retirement savings account could potentially end up with hundreds of thousands more dollars compared to someone who starts saving in their 20s. Delaying the start of investing until 30 would yield about $691,000, whereas beginning at 25 could result in roughly $998,000. However, by starting at age 19, despite contributing only $30,000 more, an investor might end up with over $1.5 million. This highlights the profound impact of getting an early start in the world of investing.
Experts recommend young people open individual retirement accounts, such as Roth IRAs, as an easy way to kickstart wealth-building. Roth IRAs offer tax-free growth and withdrawals, making them an attractive option for young investors. Ed Slott, an IRA expert, emphasizes the importance of setting up Roth IRAs early to establish a lifelong investing habit. With the power of compounding, consistent contributions to a Roth IRA can lead to significant wealth accumulation over time.
Gen Z’s confidence in investing stems from the accessibility of financial resources. The availability of online information and social media platforms has equipped this generation with knowledge that previous generations did not have access to at such young ages. However, experts caution against solely relying on social media for financial advice and stress the importance of consulting with trusted financial advisors. While social media can provide information, it may lack the necessary context for making sound investment decisions.
A growing concern for many young people is student loan debt. Despite the significant amounts owed by borrowers under 24 and ages 25 to 34, experts advise that debt should not deter individuals from investing. Balancing debt repayment with investing for future goals is crucial. Making minimum loan payments and starting small with retirement savings, even if it means saving just $100 a month, can set individuals on the path to financial security.
Gen Z is emerging as a generation that recognizes the importance of early investing and financial planning. By taking advantage of time, leveraging resources like Roth IRAs, and seeking guidance from trusted advisors, young investors can pave the way for a financially secure future. While student loan debt may pose challenges, the discipline of balancing debt repayment with investing can lead to long-term financial success. With the right tools and mindset, Gen Z has the potential to become the new stars of the investment world.