Why Gen Z is optimistic about retirement
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Planning for retirement has become increasingly complex. Individuals have been forced to take on more personal responsibility for their future due to the elimination of pension plans, rising health care expenses, and the anticipated increase in longevity. The financial crisis created by COVID-19 over the last few years has further complicated this under-preparation. The ups and downs of the economy may cause people to give up hope. However, recent studies show that Generation Z is the most optimistic - even with a global pandemic in the equation.
Generation Z is defined as individuals who were born between 1995 and 2010. This cohort is currently between the ages of 10 and 25 and represents approximately 25% of the U.S. population. Generation Z has hope and vision beyond other generations and still believes in an American Dream that includes retirement. The thoughts of having a career, owning a home, and reaching other personal milestones are very present.
A recent study reported by Morningstar suggested that Generation Z is the most optimistic about retiring at or before age 65. Individuals in the study believed they had a 69% chance of retiring. A prior study in 2019 showed that only 31% of Millennials, 18% of Generation X, and 11% of baby boomers believed they would retire before age 65.¹
Older members of Generation Z are entering the workforce or have recently started careers. Although life has not provided them with as many experiences as their parents or grandparents, their beliefs should not be discounted because they are young. Members of Generation Z have witnessed tragedy and unique challenges that put them in touch with reality.
School shootings that suggest a more threatened society
Increased anxiety due to bullying and social media
Rising education cost that may make college unachievable
Increasing stress due to rising student loan debt and limited job options
Record market volatility during the Great Recession of 2008 and a global pandemic
Record unemployment for their parents and grandparents in 2008 and 2020
What makes the Generation Z cohort different and more hopeful? According to generational expert Dr. Candace Steele Flippin, it may be due to their upbringing. Generation Z’ers are the children of Generations X and Y who tended to let their children figure things out; whereas Generations X and Y were raised by Baby Boomers who took more of a helicopter parenting approach and guided more of their children’s decision making. Their “can do” attitude may also come from growing up watching young dot-com entrepreneurs change how business is done and create an extraordinary amount of wealth.²
Generation Z is also the first full generation to grow up with access to information through the internet and social media. They not only value learning, they have always had quick access to information to help them gain understanding. Such access and knowledge provide them with a sense of confidence that prior generations may not have experienced.
According to Dr. Steele Flippin, Generation Z values faith and happiness more than baby boomers, Generations X, and Y. Generation Z also places greater value on work-life balance and has more significant concerns about going into debt. Their differing values may also influence how they view retirement.
The Morningstar study suggested that Generation Z has a much different view of retirement lifestyle. Its members also place a non-financial value on work. According to the study, 60% of Generation Z wants to continue working, including without pay, in retirement. However, past studies have shown that only 25% of Generation X, 34% of Generation Y, and 25% of Baby Boomers share this vision.
How can we help?
Every generation should want the one that follows it to make progress. Generation Z’s optimism may be what is needed to help overcome retirement challenges in a rapidly changing world. However, members of this group still need help – the good news is you don’t have to write a check.
Although Generation Z values education and has a wealth of information at its fingertips, many of its members struggle to understand where or how to begin learning about personal finance. This group has little experience with budgeting, investing, and planning. They are not alone as only 30% of the population is financially literate. Many of them did not grow up in an environment where financial literacy was part of a school curriculum. In addition, many have not had or witnessed interactions with a financial advisor.
The good news is Generation Z appears to be open to conversations about retirement. According to the same Morningstar study, 50% of Generation Z’ers have had conversations with their parents about retirement. In addition, 23% of them have conversations frequently. The data suggest that members of Generation Z are having retirement conversations more frequently than members of Generation X, Generation Y, and Baby Boomers.
This generation appears to be very curious, and we should help them convert their curiosity into solid financial plans that can lead to success. If you have not already done so, you can help by doing the following:
Initiate a non-threatening financial conversation with the young people you know. Financial conversations can be difficult, especially if younger people think you are telling them what to do. Instead, share the lessons you have learned and the advice you would give your younger self.
Share newspaper clippings, podcasts, and books you think are helpful. Find information they can digest quickly, so they do not become overwhelmed and disengage. Also, offer them the option of discussing them with you.
Introduce them to your financial advisor. If your privacy is an issue, you and your advisor can explain the benefits of your relationship without going into details about your net worth. The purpose of the conversation is for them to learn where and how to start the conversation.
Encourage them to contribute to retirement accounts sooner rather than later. Compound growth in an investment account produces great benefit over time.
Mesirow has provided financial advice to individuals and families for over 80 years. We are here to help every generation reach their financial goals.
Published February 2022
1 Generation Z Insights How the Next Generation of Investors Approaches Retirement, Saving, and More, Morningstar 2020