Generation Z Outpaces Millennials and Gen X in Retirement Plan Contributions
New data from the second quarter of this year reveals that Generation Z retirement plan participants are outpacing both Millennials and Gen Xers in terms of their rate of contributions to retirement plans. These findings indicate that Generation Z has grasped the importance of time as an ally for retirement investing, and are taking proactive steps to secure their financial future.
According to research conducted by the Financial Industry Regulatory Authority’s Investor Education Foundation and the CFA Institute, Generation Z is also keen on using mobile technology and following financial influencers online for advice. The study further highlights the varying investment preferences of each generation.
The research shows that retirement plan participants in Generation Z have increased their deferrals at a higher rate compared to Millennials and Gen Xers. Bank of America, FINRA, and the CFA Institute all report similar findings in their separate Q2 research.
Generation Z refers to individuals born after 2000, Millennials are those born between 1981 and 2000, and Generation X comprises those born between 1965 and 1980.
When it comes to investment choices, the research reveals interesting trends. More than half (55%) of Generation Z investors are invested in cryptocurrency, while 41% have individual stocks and 35% own mutual funds. Among Millennials, 57% own cryptocurrency, 38% own individual stocks, and 43% own mutual funds. In Gen X, 39% invest in cryptocurrency, 43% own stocks, and 47% own mutual funds, according to the FINRA and CFA data.
Paul Andrews, managing director for research, advocacy, and standards at the CFA Institute, commented on the impact of this new generation on investment practices and products, saying, “These new entrants to the world of investing are reshaping investment practices, products, and platforms. A range of macroeconomic and social factors such as rising inflation, the growing popularity and accessibility of cryptocurrency, and social media ‘finfluencers’ are having a profound impact on how, where, and what they invest in.”
The research also found that a significant number of Generation Z investors are diversifying their portfolios. Almost a quarter (23%) of Gen Z investors have invested in exchange-traded funds, and 25% own non-fungible tokens (NFTs).
Gerri Walsh, president of the FINRA Foundation, commended Generation Z for their diverse and digitally savvy approach to investing. She highlighted their use of mobile technology to enter the financial markets and consult a wide range of information sources. Walsh emphasized the importance of understanding their investment decisions and providing them with the educational tools to prepare for those decisions.
The study further revealed that Generation Z investors heavily rely on social media as a preferred source of information for investing and financial topics. A staggering 48% of Gen Z investors turn to social media for advice, compared to 42% of Millennials and 26% of Gen X. Meanwhile, older participants tend to rely more on internet searches and general websites.
On the whole, the data indicates a positive trend among retirement plan participants. In the second quarter, more participants across all age groups increased their contribution rate (10.2%) than decreased (2.2%), according to Bank of America data.
Specifically, among Gen Z participants in Q2, 19.3% increased their contribution rate to a retirement plan, while 2.6% contributed less. For Millennials, 11% increased their contribution rate, and 2.6% decreased contributions. Among Gen X participants, 9.7% increased their contribution rates, although Bank of America did not provide a figure for corresponding Gen X deferral cuts.
Overall, the average account balance of retirement plan participants reached $82,300 by the end of June, compared to $75,000 at the end of 2022, as reported by Bank of America.
Bank of America’s pulse report monitors the behavior of plan participants in its recordkeeping clients’ employee benefits programs, which encompass over 4 million participants with positive account balances as of June 30.
The total sample size for the FINRA/CFA study was 2,872, comprising Gen Z, Millennial, and Gen X investors. The data was collected in November and December 2022, with respondents contacted using a combination of Schlesinger’s proprietary online panel and social media advertising on TikTok and Instagram. Individuals agreed to participate and were compensated for completing surveys.
Analyst comment
Positive news. Generation Z is contributing more to retirement plans than Millennials and Gen X, indicating a proactive approach to securing their financial future. They also show a strong interest in mobile technology and following financial influencers for advice. The market is likely to see an increase in retirement plan contributions and potential shifts in investment preferences towards cryptocurrency and individual stocks.
