By: Katie Gomez

Millennials face more than just Halloween scares—like paying off student loans and navigating the housing market. Many of us are struggling just to get by, but if there’s one thing that truly frightens young people, it’s the uncertainty of the future. Unfortunately, growing up in school, we were not privy to learning what we needed to know. Millennials and Gen Z are not living in the same generation as our parents did, especially regarding our careers, so when it comes to future finances, retirement plans, or savings, we can feel out of control, behind, or fearful.

Luckily, there is a way to take your financial future back into your own hands, whether you already have a 401k or have never even created a savings account. In this article, I’ll explore why younger generations struggle with finances and how they risk lacking savings for retirement if they’re not careful. Next, I’ll explain how younger people can begin saving for their future, no matter their financial history, job situation, or market knowledge. 

The Blindspot of Gen Z’s financial savvy

Younger millennials and members of Gen Z are the first generation to utilize the gig economy, remote work, contract/part-time jobs, entrepreneurship, and social media to supplement their income or ditch their 9 to 5 jobs entirely. This shift has surprised older generations. According to Newsweek’s recent study, “Gen Z was found especially likely to plan their resignation for the next year, with 39 percent saying they have already or planned to quit their jobs this year.”  

While freedom and autonomy can be the dream compared to being chained to a desk for 40 hours a week, especially when you’re getting paid the same or more, there is always a catch. Behind the scenes of our parents’ and grandparents’ boring jobs was security, not just a stable paycheck but social security, savings, and investments being stored away for your and possibly your family’s future. The blind spot in the gig economy is future planning, and unfortunately, selling your earrings on Etsy or driving Uber on the weekends does not come with a 401k plan. 

However, this blind spot is not a surprise to the generation, also known as tech or internet babies, who grew up with immediate gratification. All we’ve ever known has come from immediate gratification; we never had to wait more than a minute to find out the answer when our parents had to scour the libraries for answers. This need and expectation for immediate gratification leave us vulnerable to the world that values delayed gratification in the form of time, hard work, and patience to succeed. 

While GenX and Boomers were taught that it takes time to be successful, years of going back to school, and years of experience to get hired, get promoted, retire, and be happy, Gen Z and Millenials expect it to happen now and when it doesn’t, they quit. This explains why a recent study by Korn Ferry showed that 40% of Gen Z individuals have reported quitting one or multiple jobs without notice in the last year, something our parents would never dream of doing. Ferry went on to re-label them as the Restless Generation. 

On the other hand, other GenZ and Millennials have secure jobs with a solid retirement plans, yet still struggle with financial savviness. This fearful mentality when it comes to money makes sense as many of us grew up watching our parents suffer though economic crashes, like the housing market crisis when people lost the homes they worked so hard to buy and watched their 401ks, which they worked so hard to build, wither away as the values of their pensions plummeted. We witnessed and learned young that security is never promised, and realized the future can be a scary place. No wonder this generation struggles with financial savviness.

So what is an easy step for younger generation to take to help them contribute to a safer and more lucrative future, that can help them not be so afraid and helpless? They can start by taking matters into their own hands, whether they have a current plan or not, they can be more attentive to what and how much they are investing their future in.  

Options for Retirement Plans 

When comparing retirement account options, it’s important to understand the critical differences between IRAs and 401(k)s. IRAs are individual accounts, while 401(k)s are employer-sponsored. Self-directed 401(k)s offer more control over investments than traditional 401(k)s, and Roth IRAs provide tax-free withdrawals in retirement. The tax implications vary between account types, with traditional 401(k)s and IRAs using pre-tax contributions to reduce current taxable income. In contrast, Roth IRA contributions are made with after-tax dollars, allowing for tax-free growth and withdrawals.

Roth IRAs vs 401K 

A common misconception is mistaking IRAs for self-directed 401ks. Some key differences include: 

• 401(k)s allow for higher contribution limits and often include employer matching, while Roth IRAs offer more flexibility in investment choices and withdrawal rules. 
• 401(k) contributions are made with pre-tax dollars, reducing current taxable income, whereas Roth IRA contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement.
• 401(k)s have no contribution income restrictions, but Roth IRAs do. Early withdrawals from both accounts may incur penalties, though Roth IRAs allow for penalty-free withdrawals of contributions at any time.

That said, Roth IRAs may be more appealing for younger newer traders due to their tax-free growth potential and flexibility, especially if they’re in lower tax brackets now. On the other hand for older Millennials in higher tax brackets, traditional 401(k)s might be more beneficial for immediate tax savings.
Millennials and Gen Z’s financial landscape is markedly different from previous generations, characterized by gig economy jobs, remote work, and a skepticism towards traditional retirement planning. This shift, coupled with a lack of financial education and a tendency towards immediate gratification, has left many young people vulnerable regarding long-term savings. However, these generations can take control of their financial futures by understanding the nuances of various retirement accounts such as 401(k)s, traditional IRAs, and Roth IRAs. Each account type offers distinct advantages, from employer matching in 401(k)s to the tax-free growth potential of Roth IRAs. The key lies in choosing the right combination of accounts based on individual circumstances, current income, and future tax expectations. By understanding these retirement accounts and starting to save early, Millennials and Gen Z can conquer their fears and take control of their financial future. If you want to learn more on which path is right for you, visit Trade Ideas today to see  how to start taking control of your financial future.

References:
Newsweek Article, Investopedia Article, Kornferry Article