Gen Z leans into soft saving, less focused on retirement

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Soft saving gains steam in today’s economy

Only recently, there was tremendous buzz around FIRE, an acronym that stands for Financial Independence, Retire Early, a movement built on the idea that handling your money super efficiently can help you reach financial freedom.

But putting enough aside to get there has proved increasingly difficult.

“Younger adults feel discouraged,” said Ted Rossman, senior industry analyst at Bankrate.

Inflation’s recent run-up has made it harder for those just starting out. More than half, or 53%, of Gen Zers say a high cost of living is a barrier to their financial success, according to a separate survey from Bank of America.

Younger adults feel discouraged.

Ted Rossman

senior industry analyst at Bankrate

In addition to soaring food and housing costs, millennials and Gen Z face other financial challenges their parents did not as young adults. Not only are their wages lower than their parents’ earnings when they were in their 20s and 30s, but they are also carrying larger student loan balances.

Roughly three-quarters of Gen Z Americans said today’s economy makes them hesitant to set up long-term financial goals and two-thirds said they might never have enough money to retire anyway, according to Intuit.

Rather than cut expenses to boost savings, 73% of Gen Zers say they would rather have a better quality of life than extra money in the bank.

Gen Z workers are the biggest cohort of nonsavers, Bankrate also found. 

“As a wealth advisor, my radar goes up,” Kara Duckworth, managing director of client experience at Mercer Advisors, said of recent consultations with young clients.

Many would rather spend their money on an extended trip, she said, than pad a savings account.

But “first and foremost, do you have an emergency fund?” she asks such clients.

Most financial experts recommend having at least three to six months’ worth of expenses set aside. If that seems unrealistic, consider saving enough to cover an emergency car repair or dentist bill, Duckworth advised. “You need to have at least some amount of liquid assets.”

Don’t discount the power of compounding

Young adults also have the significant advantage of time when it comes to saving for long-term goals such as retirement.

“Every dollar you set aside in your 20s will compound over time,” Rossman said. The earlier you start, the more you will benefit from compound interest, whereby the money you earn gets reinvested and earns even more.

“Compound interest is the eighth wonder of the world,” Rossman added, referring to an earlier comment Einstein reportedly said.

How compound interest can help you build a small fortune

Even if you don’t set aside much, put enough in your 401(k) to at least get the full employer match, Rossman also advised. Then, opt to auto escalate your contributions, which will steadily increase the amount you save each year. “That can grow tremendously over time.”

There are no magic bullets, added Matt Schulz, chief credit analyst at LendingTree, but there are a few financial habits that pay off. “Most things around saving aren’t super complicated but it doesn’t mean they’re easy to do,” he said.

“Just like having a healthy lifestyle, it’s just about doing the right things over and over again over time and having patience.”

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