Gen Z is the most financially savvy generation

Gen Z is growing up. More members of the generation, the oldest of whom are now 26, are finishing school and beginning their careers. And as more of them get jobs, the cohort's income is rapidly expanding. By 2030, Gen Z's income is expected to hit $33 trillion globally, and by 2031, it will surpass what millennials make in a year.

So what are young people doing with their newfound cash?

For the most part, Gen Zers are bucking the stereotype of freewheeling youth partying and squandering their funds. Many have watched their parents and millennials weather previous recessions and learned how precarious the economy can be. As a result, Gen Zers are taking a more cautious approach to their financial futures and using their paychecks to try to get a leg up.

In a May survey from the CFA Institute, a global trade association for investment advisors, more than half of Gen Z respondents said they were already investing, and 82% of American Gen Z investors said they began investing before they turned 21. That's significantly higher than the 31% of millennials and 14% of Gen Xers who said in a 2018 survey they began investing at that age. Of the Gen Zers who are already in the market, just under 90% said they were actively making trades in response to economic factors such as inflation and rising interest rates, an April Bankrate survey found, by far the highest of the generations. Overall, the Federal Reserve's Survey of Consumer Finances found that more Americans held stock in 2022 than in any previous year recorded.

It's not just economic uncertainty that worries young people but also planning for retirement. More than half of those surveyed by the CFA Institute said they were investing to be able to retire when they wanted to. Given that financial advisors say that Gen Z will need roughly $3 million for a 20-year retirement — a high bar even for smart money managers — young people aren't wasting any time. Overall, 66% of Gen Zers surveyed by the Transamerica Center for Retirement Studies said they'd started saving for retirement, stashing away a median 20% of their annual pay — almost double the share of income that older generations said they were stashing away.

The uncertain financial circumstances of the generation and growing access to financial products have inspired a willingness among Gen Z to jump headfirst into the world of investing. And while there are plenty of pitfalls and missteps that could plague young people along the way, Gen Z is shaping up to be the most financially savvy generation yet.

Rise of retail investing

Given the deluge of headlines saying Gen Z has it harder economically than any previous generation, how are they managing to save at rates that outpace their generational predecessors?

Erin Lowry, author of the "Broke Millennial" book series, told me that "so much of it is as simple as access." Gen Z grew up online, long after the days of paper checks and physical credit-card imprinters. Money for the up-and-coming generation has always been digital. Instead of cash, there's Venmo and PayPal. Instead of a traditional brokerage, there are investing apps such as Robinhood and Webull. Instead of a financial advisor, there are financial-planning channels on social-media platforms including YouTube and TikTok.

"Investing, especially, has become far more democratized than it has for any generation prior," Lowry said. "Gen Z are the first digital natives, which also makes them uniquely more comfortable with things like investing via an app compared to previous generations."

According to the CFA Institute report, 65% of Gen Z investors said they used investing apps to trade, while only 55% of millennials and 38% of Gen X investors said they used apps. Forty-eight percent of newly minted Gen Z investors said they were getting financial advice from social media — and, the CFA report said, these platforms are the "top information source" for young investors in the US, Canada, and UK.

These online tools lower the barrier to entry for many Gen Z investors and stand in stark contrast to the deluge of forms and clunky customer service offered by traditional financial advisors.

"A lot of the older brokerage houses took a long time to adapt to have a decent app or even a decent interface on their website," Lowry said. "If you're not really familiar with how investing works, it can be incredibly overwhelming, even if it's as simple as trying to open up a Roth IRA."

FOMO investing

If access is what allows Gen Z to start investing, it's the online culture around money that drives them to jump in. For every scroll on social media, there is an ocean of financial influencers, "finfluencers," on TikTok, YouTube, and Reddit ready to show you the three easy steps to make hundreds, or even thousands, of dollars. They rope in followers with screenshots showing their purported investment-portfolio earnings or evidence of the next big stock about to take off. Every slick graphic and dollar sign screams: "If I did it, so can you!"

All that promotion has resulted in a tangible fear of missing out: Half of Gen Z investors in the CFA survey said they had made an investment driven by FOMO. The feeling — and a lot of forced free time — helped play a big role in the pandemic's meme-stock craze, which served as a catalyst for many young people to get in on the action. During the last two weeks of January 2021, the investment platform Interactive Investor witnessed a remarkable 1,400% surge in new-account registrations among 18- to 24-year-old men and a 1,200% surge among women in the same age group compared with the previous year.

"I think there's a lot of emotion related to this widespread embracing of financial literacy," Charlie Pastor, a contributing expert at The Motley Fool's Ascent service, said. But FOMO-driven investing or blindly following the advice of finfluencers, Pastor said, can lead to a poor investment strategy.

Over 64% of Gen Zers surveyed by the UK Royal Mint, the official maker of British coins, said they fell victim to a "get rich quick" investing scheme. And in a recent study conducted by Barclays Smart Investor, nearly half of Gen Z investors said they were pursuing quick financial gains through short-term investments. Nearly half of respondents ages 18 to 24 said they intended to invest their money for a relatively short period of two to five years. And over one-fifth said they were investing to "take advantage of the market," with 16% saying they wanted to "play the markets" to make fast profits. And the CFA Institute report found that Gen Z investors around the globe were more willing to speculate on unproved investments than any other generation, with a high interest in risky assets like nonfungible tokens and cryptocurrency.

That going-for-broke mentally can, obviously, quickly turn sour. Last year, the nearly total collapse of the crypto token luna triggered a substantial downturn in the overall cryptocurrency market. The estimated $60 billion wipeout caused many Gen Z investors to lose big. One then-23-year-old told Insider that they lost their life savings after putting their money in the asset.

"This is where personal finance is personal," Taylor Price, a Gen Z founder and the chief experience officer of Savvy, an app that helps people maximize discounts on their purchases, said. "If you see advice on social media that goes towards investing in a particular company or index funds, do your own due diligence, and take that as maybe a tip but not necessarily the do all be all."

Not everyone in the generation is making bad investments. Price has noticed a lot of young investors simply putting their money behind their own likes and interests, which can be a boon for those companies. "If they like Chipotle, they're investing in Chipotle," Price said.

While Gen Z may not always be drawn to the safest investment choices, it's certainly getting some hands-on learning. "You are going to lose money sometimes, and that should be a learning lesson to improve upon in the future," Lowry said. "Better to be making those mistakes at 19 than at 45 or 50."

Saving for the future

If some members of Gen Z are falling for classic investing pitfalls, many young people are taking a sound approach to financial planning. In particular, they are learning from their parents' mistakes and getting a head start on their retirement plans.

Gen Z started saving for retirement at the median age of 19, earlier than any other generation, the Transamerica Center for Retirement Studies survey found. And a recent Vanguard report found that compared with people entering the workplace just 15 years prior, Gen Z seemed to have learned some lessons: 62% of 18- to 24-year-olds said they were contributing to their workplace retirement plan in 2021, compared with 30% of people who were the same age in 2006.

Pastor, the Motley Fool expert, believes this is partly due to a growing number of employers who are auto-enrolling workers in retirement plans. But it's also a result of how out-of-reach retirement feels for many young adults, pushing them to start saving as early as possible. Seeing the financial pressure that saving for retirement has put on her parents and grandparents was "kind of an awakening moment," Price said, adding: "I don't want to be working until I'm 65, 70 years old. I want to enjoy the rest of my life." The number of workers unsure they'll ever be able to retire has grown from 32% in 2021 to 44% in 2023, a BlackRock report found, with just 56% of Gen Zers saying they expected to reach the milestone. Pastor believes the pessimism is due to residual fear from the 2008 and 2020 financial crashes.

"I think that's forcing young savers to really take the reins and be advocates for themselves," he said. "It seems like nobody else is going to step in and make sure that they feel comfortable with investing or saving for retirement."

In many respects, Gen Z is coming of age at a good time, graduating into a booming job market with strong wage growth. By contrast, millennials' journey to adulthood was riddled with obstacles, including two recessions before the age of 40 that came with widespread job losses, home foreclosures, and investment losses.

"The sheer number of millennials that I know who would not invest because they were so scared of it because of 2008," Lowry said, adding that there was an "intense scarcity mindset" among her generation of millennials. She said that many thought: "If I have money, I'm just going to save it. I don't want to put any risks on it."

But Gen Zers have had the chance to learn from their elders and use a deluge of online resources to make their money grow. Whether it's the fear of missing out on big investment gains or the fear of not having enough money to retire, Gen Z heard the financial advice "start early" and ran with it. And with time on their side, Gen Zers are in for a penny, in for a pound.

Eve Upton-Clark is a features writer covering culture and society.