Raised on the Internet and social media, most of Generation Z are now between the ages of 18 and 25. This is arguably the ideal age to start investing, as it lays the foundations for financial stability and success later in life.
As a Gen Zer and member of the digital generation, you probably already know about savings and checking accounts, credit cards, filing your taxes, and maybe even how to scout the stock market. All of which are all vital steps towards financial freedom.
But learning how, when and why to invest is another critical skill to take with you into the adult world.
According to data in the 2022 Investopedia Financial Literacy Survey, Gen Z adults are more financially advanced than any other past generation was at their age. With that said, Investopedia also notes that this generation has a lot to learn about solid financial management. Statistics from the report show that over half of Gen Z adults already hold investments, with 26% of these investors holding shares in the stock market. This is definitely impressive. Yet only a quarter of Gen Z adults feel that they have enough knowledge of how the stock market works to explain it to a friend, showing that learning is the key to advancing these budding skills.
Moreover, across all financial concepts, Gen Z is most confident about spending money and saving it, showing that they already have the right mindset about building wealth in the long term.
If you’re a Gen Z looking to strengthen your finances and master your money, read on as we delve into the top 5 reasons why you should start investing today.
1. Investing Can Help You Reach True Financial Freedom
Living from paycheck to paycheck is unavoidable for some, but it does make it more difficult to build financial wealth. Additionally, it creates stress and strain and puts you in a perilous financial position should an emergency arise or you get hit by unexpected expenses.
Investing—even if it’s only very small amounts of money on a regular basis—will position you to start building long-term wealth while you’re still young.
This approach allows your money to work for you and earn interest over a longer time. Doing so it ensures that you can build a significant nest egg for rainy days, important purchases, entrepreneurial expenses, and more. This not only gives you peace of mind and a safety net, it also opens up a world of different opportunities and gives you more financial freedom than you’d have had otherwise.
2. The Sooner You Start, The Better
It’s never too late to start investing, so don’t let anyone tell you otherwise. But the earlier you start, the more of an advantage you will have in the future. Starting to build an investment portfolio today will give you plenty of time to make lists of markets you’re interested in investing in, find investment opportunities that align with your values (like sustainability or social responsibility), and allow your money to work to your benefit.
Remember, investing is largely a game of time. Giving your money enough time to grow is, in many cases, more important than how much you invest.
Data from MyWallSt shows that even if you invest just $2,000 today, you could be sitting on almost $100,000 after four decades have passed, assuming that you earn a return rate of 10% per annum. Investing places you in a prime position to earn compound interest, which provides far better returns than the average savings account.
3. You Can Put Your Money Where It Matters
Gen Z is well known for their keen focus on social issues, climate change, and sustainability, among other important and growing topics. They’re also known for being a strong-willed generation that takes control of their futures and how they interact with the world around them.
Yet another reason to start investing your spare cash is to grab the opportunity to become a shareholder of a responsible, conscious business that uses your money to do real good in the world. When you invest in stocks, you become a shareholder. This means that you’ll essentially own part of a company through your stocks, and this gives you the right to earn a percentage of the company’s shares and assets. As this business grows, the prices of the shares you own will increase, and you’ll profit if and when you decide to sell them.
4. You Can Diversify Your Savings
A recent survey from Betterment Business notes that a hefty 88% of Gen Zs are actively putting away money into a savings account each month. This is a good start, as it proves that this generation is a financially savvy one.
Of course, money stored in a savings account doesn’t carry the same risk as investments do. But putting money towards both saving and investing will create a comfortable emergency fund for you while allowing some of your savings to grow at a return rate of around 10% annually—the percentage that the stock market has returned each year since the mid-70s.
5. You Can Stretch Your Investments (By Acting ASAP)
Buying more investments at times like these when asset values are dropping across the board gives you a valuable opportunity to maximize your savings when stock prices increase in the future. By choosing to buy stocks now, you’ll be buying more assets for the same price you’d pay if you waited until the market rebounded.
When stocks are on the cheaper side, you can put in a set amount of money every month and buy more shares than when stocks are expensive. This is basic math, but the returns you stand to gain might be more than you expect. According to Forbes, if you were to invest a total of $500 in a market index fund at $250 per share, you’ll gain two shares. If the share price grows to $350 after you invest, you’ll gain an additional 1.4 shares. This simple yet highly effective method gives young investors a great way to start their money building journey while stretching the money that they do currently have.
Build Your Future by Investing
Investing is a simple way to grow your wealth at any age—and the sooner you start building your investment portfolio, the more you stand to gain over a period of years.
If you see yourself starting a business, owning property, or retiring comfortably in your future, there are few better ways to reach these long-term goals than to invest in stocks—ideally when they’re cheap—and let your money work for you!