Members of Generation Z (age 22 and under) are now the youngest employees in the workforce. But as they start their professional careers, many are failing to focus on a key aspect of their personal finances: their savings.
In fact, 57% of Gen Z has no idea how much they have in personal savings, compared to 46% of the general population. That's according to recent data from Northwestern Mutual's 2019 Planning & Progress Study, which polled more than 2,000 U.S. adults.
Part of that can be chalked up to their age: "It goes along with just getting started," Emily Holbrook, senior director of planning at Northwestern Mutual, tells CNBC Make It. For many members of Gen Z, it may be a matter of, "We're just dipping our toe into the workplace; it's the beginning of our professional lives."
Plus, it's likely they haven't yet needed to worry about managing their finances. "They haven't really run into the type of situations and financial goal commitments that would have maybe triggered that initially, like buying a home, getting married, thinking about children," Holbrook says.
However, it's crucial that young workers start planning for the future now. As Holbrook says, "We can't underestimate the importance of taking the reins, grabbing that control and taking some positive steps forward."
That's because young people are in the best position to take advantage of time in the market. Thanks to compound interest, any interest your investments earn then accrues interest on itself, which means the earlier you're able to start socking money away, the bigger the boost the stock market will give you.
If you save $285 per month starting at 25 and earn an 8% rate of return, you'll have about $1 million by 65. But if you wait to start until 30, you need to put away $433 per month to end up with the same amount. If you wait until 40, that number goes up to $1,045.
In addition to missing out on potential earnings, Gen Z could also be setting themselves up to fall into "the same debt trap" that other generations have experienced, Holbrook says. Not only do wages not stretch as far as they used to, but middle class life is 30% more expensive than it was 20 years ago, according to Alissa Quart, author of "Squeezed: Why Our Families Can't Afford America." By making savings a priority from the start, Gen Z can hopefully avoid turning to credit cards or other debt when an emergency strikes.
To get started, young workers should first take a look at their current financial picture. You should have a firm understanding of how much you earn, any savings you have and any debt you might owe, Holbrook says.
Next, make a plan of action. "Go to any site where you're able to plug in numbers and understand the impact that getting savings started can have on your future," Holbrook says. From there, get in the habit of saving whatever you can and automate the process as much as possible.
Even if you can only put away $10 a month, it's better than nothing. For Gen Z, the most important thing is to build good habits early.
"I would highly encourage them to think critically about the role of personal finance and making that a part of their overall goals," Holbrook says.
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