Gen Z has a mindset issue with retirement planning

Gen Zs love to talk about being on a journey and have some clear ideas about the ones they want to take and the routes they plan to use. But for some, the retirement planning journey may require a better sat nav.

A new report from the TIAA Institute reveals that the number one reason why 20% of Gen Zs are not saving for retirement is because they don’t know where to start (35% of respondents said this).

Their mindset also frequently forces a ‘spend now or save now’ choice but while 30% of respondents say they prioritize saving and 20% prioritize spending, the remaining 50% are undecided about how best to manage their finances.

Many of the youngest cohort of American adults are finding it hard to connect the financial freedom that sits at the top of their priorities with the idea of retirement, given that it seems so far in the future and lacks the excitement of other aspects of wealth building.

"The traditional path to retirement is simply not compelling to most in Gen Z. They want financial freedom now so they can take professional breaks, travel, and pay the bills," said Kourtney Gibson, TIAA's chief institutional client officer. "The TIAA Institute's findings underscore the need to help those currently early in their career prepare for the future with professional advice and planning that links financial basics and saving with freedom for fun.”

Gibson added that employer-provided plans can be the first step to get many Gen Zs on the right path to financial security.

Two thirds of respondents who are saving for retirement do so through 401(k)s and there is a 10% jump in those who said they are saving and are aged 22-23, typically the age of college graduation and transition into the workforce.

Read next: 401(k) vs IRA: which is a better wealth management tool?  

Another challenge that financial advisors may face when trying to engage Gen Zs in retirement planning discussions is that their idea of retirement may be very different to an advisors. Many young adults don’t expect to ever retire in the traditional sense.

And it may be a big ask for a Gen Z to consider saving money for something decades down the line when they are struggling to pay for education and housing.

“As an industry we need to reimagine how we educate Gen Z on the importance of retirement savings, and how a secure retirement ultimately leads to financial freedom and flexibility," said Micky Onvural, chief marketing and communications officer at TIAA.  

WHO ARE THEIR FINFLUENCERS?

While it might be easy to imagine that young Americans are only interested in hearing from those they follow online, or using AI, their actual ‘finfluencers’ may be closer to home.

The research shows that two thirds of respondents follow a mix of financial institutions, financial advisors, and financial content creators, but six in ten are also heavily influenced by their parents when it comes to financial sources.