Money talks: Younger generations lag in retirement investing

Michael Weleski has been working since he was 12. Now 21, he used the money he has earned to make a variety of investments for his future.

“I don’t want to have to work a hard labor job until I’m 70,” Weleski said.

The Penn State New Kensington student from Plum was inspired at a young age to save money. Weleski’s grandfather came to America from Italy. He watched his grandfather work until he was in his 70s.

“He had nothing, and so I saw how he had to work, work, work every day for money,” Weleski said.

According to experts, Weleski’s drive to save sets him apart from most of his peers.

According to the Global Financial Excellence Literacy Center at George Washington University, American youth often lack basic financial literacy.

The average age an American starts investing is 33, according to a 2021 study by robo-adviser Personal Capital.

Data tracking millennials — those ages 29 to 44 — shows the generation exhibits the lowest financial literacy among all age groups, with only 1 in 4 demonstrating a basic understanding of financial matters. According to the Personal Capital study, only 8% are highly financially literate; 30% overdraw their checking accounts; 42% used an alternative financial service such as payday loans, pawnshops, auto title loans or tax refund advances in the past five years; and more than 20% with retirement accounts had taken out loans against those accounts or used hardship withdrawals in the prior year.

According to a 2023 survey by Saxo, an online investment platform, about 44% of Gen Z investors — ages 13 to 28 — said they didn’t invest because they had limited funds and only 29% had a retirement account.

Prepping for the future

Weleski is earning his accounting degree to become more financially literate.

He hopes to use his money skills to start his own business one day. For now, he’s focused on saving and investing for the future.

He has a personal brokerage account, where he invests in things like individual stocks and index funds.

An index fund is a collection of companies mixed into one fund. An investor can buy multiple shares of the fund and therefore diversify their money within stock investments because the fund is attached to the performance of multiple companies.

Weleski is invested in three index funds, including an S&P 500 index fund, a market index that measures the performance of 500 of the largest publicly traded companies in the U.S.; an international business index fund; and a bond index fund.

In an attempt to diversify his portfolio, Weleski put a little of his money into cryptocurrency investments and hopes to begin investing in real estate someday.

In preparation for retirement, Weleski has a Roth IRA account, an individual retirement account that offers tax-free growth and tax-free withdrawals after retirement. He contributes the maximum amount allowed by law — often referred to as “maxing out.” For 2025, that amount is $7,000 for those under 50, and $8,000 for those 50 and older, according to asset management company Vanguard.

Starting early

Weleski also has a 401(k) through the accounting firm where he’s interning. By having a Roth IRA and a 401(k) at such an early age, he is taking advantage of compounding interest that can build over the years.

A 25-year-old, for example, who puts $500 per month into a 401k earning 4% annually will end up with almost $630,000 in that account at age 67, according to Forbes.com. If that person waited until they were 45 to start saving the same amount, they’d have less than one-third of that — a little more than $200,000 — at 67.

How much a person needs to save for retirement can be answered only on an individual basis, experts say, because of the many factors affecting how much money they will need. There are some benchmarks, however.

By age 40, workers should have twice their annual income saved for retirement, according to investment firm T. Rowe Price. By 50, that should jump to five times their annual income and nine times their income by age 60.

Establishing good habits

While Weleski may be operating ahead of the curve for his age, he started his journey by speaking with the people around him for advice.

“The biggest challenge is getting started and sticking with it,” said David Root, CEO and founder of wealth management firm DBR and Co.

Much like following a diet or mastering a skill, investing effectively begins with establishing good habits early and sticking with them, Root said. He called getting started in the investment arena a “critical point” in someone’s financial journey.

Good habits include establishing a base for investing such as a savings account and a small rainy-day fund for emergencies, saving regularly and accounting for risks by having health and disability insurance.

Root said his firm helps young investors learn these skills through DBR’s “Next” program, a consulting option developed specifically for young clients or clients new to the investment arena.

“It’s one of the fastest growing parts of our business,” Root said.

Not only does the program focus on good money habits, but it also helps clients learn how to avoid becoming obsessed with or afraid of the market, Root said. He likened his firm to a team of coaches, instructors or trainers that help keep their clients on the right track.

Root said new investors should not jump into the market without researching first.

“You’ve got to take care of the basics,” Root said.

He recommended looking to the future when setting up basics. In a rainy-day fund, put aside money for things in the future like a new car or a house. If someone is able to save for more than a year into the future and is able to look two to five years down the road, then begin to think about investing, Root recommended.

“It’s so important to walk before you run,” Root said.

Research, research, research

“My best advice for somebody getting started is to look for a good coach — you know, somebody that you really like, that you can rely on, that cares about you,” Root said. “You wouldn’t start a new medication without researching it or without a professional’s guidance. You shouldn’t with stocks, either.”

Weleski began learning about personal finance when he turned 18. He said he reads about the different types of investment opportunities, listens to finance and business podcasts such as “Diary of a CEO” and speaks regularly with more experienced investors.

There are a variety of podcasts that address facets of personal finance, including NPR’s “Planet Money”; “BiggerPockets Money,” hosted by financial experts Mindy Jensen and Scott Trench; and American financial adviser Suze Orman’s podcast “Women and Money.”

“I also like to listen to and read investment opinions from both sides about an investment and then form my own opinions,” Weleski said.

Akin Sayrak, clinical assistant professor of business administration at the University of Pittsburgh, said there are a few ways to improve financial literacy, including taking formal classes or reading literature.

While most people will receive social security once they retire, its payments will not cover their daily expenditures, Sayrak said.

“They’ll need the supplemental that is coming through their independent retirement accounts,” Sayrak said.

According to the Social Security Administration website, the estimated average benefit amount changes monthly. As of January, the estimated benefit was $1,976 per month.

The earlier someone starts saving for retirement, the better odds they have at being able to cover their needs in their retirement years.

High risk, high reward

Anytime someone invests money into something, there is a risk, whether large or small, that they might not get that money back — that the investment may fail.

For bearing that risk, the investor can expect a return that compensates them for potential losses. On average, the higher the risk, the more the investor should receive for holding the investment, and the lower the risk, the less they should receive.

Investopedia, a global financial media website, groups growth stocks — shares in companies that are anticipated to grow at a rate significantly above the average growth for the market — into a higher risk category because of the volatility of the stock market, while listing corporate bonds and cash in moderate- and low-risk investments, respectively.

Sayrak said that, as an investor gets older, it helps to move money to more secure investments such as bonds. In general, for young people just starting out in their career, it makes sense to invest with about a 70% to 30% ratio in terms of higher risk to lower risk. When hitting their mid-career point, investors should move that ratio to about 50% to 50%. In accordance with the ratio, when someone is about to retire, they would have about 70% of their money in secure investments and about 30% in riskier investments.

Sayrak described the stock market as an available economic activity that everyone has a chance to be part of. Somebody could be an entrepreneur and create businesses and jobs for people, while others work for money a business pays them for their services. On a basic level, the stock market gives a person a taste of having a stake in a business’s success or failure.

“You have the potential of reaping significant benefits. What the stock market does to our saver is expose the benefits of entrepreneurship to somebody who is not an entrepreneur,” Sayrak said.

He said it could be advantageous for people to start with small quantities of their money while they’re getting comfortable with the investment world.

“When you start with small quantities, one of the advantages is that the risks are minimized,” Sayrak said. “Once you get more knowledgeable about what you’re doing, then you’re going to eventually fold into that.”