(MoneyWise) - For 18-year-old Anousha Ahmed, her first job meant freedom.
“My focus wasn't really saving. It was more like, now I have all this discretionary income. I can do whatever I want,” says Ahmed, who is based in Virginia.
She briefly worked at a swim school for children earlier this year, which earned her some fun money for experiences like concerts, traveling, eating at restaurants and going roller skating.
Ahmed isn’t the only one in her age bracket putting savings on the back burner. Fidelity Investments’ 2022 State of Retirement Planning report found that half of Gen Zers don’t see a point in saving money until things return to “normal,” while 56% put their retirement planning on hold during the pandemic.
These percentages were slightly lower for millennials, and significantly lower for the Gen X and boomer generations, who are much closer to or are already in their retirement years.
Ahmed says the COVID-19 pandemic showed plenty of young people how quickly their “normal” can be stolen away — so she has prioritized making up for those missed years with exciting experiences and good memories.
Don’t miss
-
Better than NFTs: You don't have to be ultra-rich to own a piece of a Pablo Picasso. Here's how to enter the fine art market
-
'Hold onto your money': Jeff Bezos says you might want to rethink buying a 'new automobile, refrigerator, or whatever' — here are 3 better recession-proof buys
-
Americans are paying nearly 40% more on home insurance compared to 12 years ago — here's how to spend less on peace of mind
Young people are investing in themselves
With all the economic uncertainty going on right now, many young folks may be seeking some sort of control, says Lauryn Williams, a certified financial planner and founder of Worth Winning, a company that helps young professionals organize their finances.
She points to stubborn inflation — the consumer price index was a distressing 7.1% in November — and stock market volatility. Americans are facing financial strain due to rising housing and grocery costs. It's also difficult to put faith in the stock market, which has seen some significant ups and downs this year.
Williams said a client recently told her, “I don't want to lose anything else, I feel like I'm losing money all the time.” That may lead to people holding onto their cash or putting their money into things they can control — even if it’s not the most strategic way to spend their money.
If they’re feeling uncertain about the future, Williams suggests young people consider investing in themselves and their professional growth — like starting their own businesses or furthering their education.
That’s exactly what Ahmed has planned. A first year student at University of Virginia, she intends to major in commerce with a concentration on information tech and management. And she’s mulled starting her own business as well.
Right now, when she’s looking at which degree to pursue and even which classes she’ll take, she wants to make sure they’re ones that will give her a “high return on investment” at the end of it.
“It's like, you make yourself better so that you can make more money in the long run.”
When should young people start saving for retirement?
The sooner you start saving for retirement, the better, Williams advises. You may be able to benefit from compound growth — which means your savings will grow with interest over time.
Assuming you begin to save at age 25, most experts recommend you put away at least 15% of your pre-tax income for retirement each year.
However, a report from Transamerica Center for Retirement Studies — a division of the nonprofit Transamerica Institute that focuses on saving and financial planning for retirement — found that Gen Z investors typically start saving for retirement at the age of 19.
But you need to be able to adapt and rejig your priorities based on what’s happening in your life, Williams adds.
Read more: The 10 best investing apps for 'once-in-a-generation' opportunities (even if you're a beginner)
Not putting money into a retirement fund isn’t necessarily a bad thing, she explains — your retirement plan might just look a little different if you’ve decided to focus on your professional growth instead.
“More young professionals are betting on themselves,” Williams explains. “They're looking at the investment in themselves as their retirement plan, like I can fill this thing. And that's going to be the payoff.”
“Right now, [they may be thinking] I don't want to put money into a retirement account, because that's taking away from the dollars that I have been able to invest in myself and what I'm trying to do to achieve my dreams and create an impact for the world.”
It’s important to find the right balance with your finances
Regardless of which demographic they fall into, many people used the pandemic to increase their savings, which then translated into more fun money they could spend when lockdowns were lifted and restrictions eased.
You need to keep asking yourself questions, says Williams. You may find yourself in situations where you’ll have to choose between being able to securely spend $50,000 in your retirement or having a good time with your family and friends right now.
She tells her clients to find areas in their lives where they can make adjustments on their spending: “Where can I clip back in some other areas so that I can do the things that are at the top of my priority list?”
Ahmed’s current goal is to be more cognizant of the value of money and how to save it.
“I spent a pretty good chunk of the amount of money that I made at my job already. I would just go through it. Like it was nothing,” she admits.
The start of college in the fall offered Ahmed a clean slate to get on track with her finances and formalize a budget for her expenses — which is already a head above the rest of her generation.
“The biggest thing is always that planning piece of the puzzle,” Williams notes.
By Serah Louis
