Here's some good news. When teens were surveyed in 2021 by the mobile banking platform Step, fully 97% of them said that financial literacy was important -- and according to some, Generation Z (those born between 1997 and 2012) are savvier about money than previous generations. Sounds good, right?

However, many young people are pessimistic about their financial prospects. According to a 2023 survey by the Teachers Insurance and Annuity Association of America (TIAA), fully 51% of young adults don't expect to do as well financially as their parents. Fortunately, many, if not most, of them are wrong. It's very reasonable to expect young people to end up surpassing their parents financially.

A group of eight young people, smiling.

Image source: Getty Images.

Older Americans aren't doing so well

For one thing, many parents are not in great financial shape. Check out how much workers in America have socked away for retirement, according to the 2023 Retirement Confidence Survey:

Amount in Savings and Investments (Excluding Value of a Primary Home)

Percentage of Workers

Less than $1,000

18%

$1,000 to $9,999

8%

$10,000 to $24,999

7%

$25,000 to $49,999

5%

$50,000 to $99,999

8%

$100,000 to $250,000

18%

$250,000 or more

36%

Data source: EBRI's 2023 Retirement Confidence Survey.

The table reveals that almost 1 in 5 workers have less than $1,000 saved and/or invested, an amount which is very close to nothing. And a third of workers have less than $25,000. Sure, some of these folks are still quite young, with decades until they retire. Many others, though, are approaching retirement with far less money than they need to retire.

According to data from the Federal Reserve's last Survey of Consumer Finances, average retirement savings for those aged 45 to 54 was only $254,720, and the figure wasn't that much better for those aged 55 to 64 -- $408,420. Even for someone retiring with $500,000, applying the flawed but still useful 4% rule would only produce $20,000 in the first year. Add the average annual Social Security benefit of around $22,000, and it's still not an easy income to live on.

So the hurdle of doing better than their parents isn't actually that high for many young adults. Now let's see what they might accomplish in their financial lives.

How much wealth can young people amass?

Check out the eye-opening table below. It shows how much you might amass over time if you invest either $5,000 or $10,000 annually for many years -- and if it all grows by an annual average rate of 8%. (The stock market's average annual return is close to 10%.)

Growing at 8% for

$5,000 invested annually

$10,000 invested annually

5 years

$31,680

$63,359

10 years

$78,227

$156,455

15 years

$146,621

$293,243

20 years

$247,115

$494,229

25 years

$394,772

$789,544

30 years

$611,729

$1,223,459

35 years

$930,511

$1,861,021

40 years

$1,398,905

$2,797,810

Source: Calculations by author.

Clearly, young people can become millionaires by retirement. Everyone's situation is different, but with dedication, perseverance, and regular investments -- perhaps into simple but powerful index funds -- young people can amass significant wealth. Investing $5,000 per year amounts to less than $420 per month -- a sum that many can manage.

That's great, but it is true that many young adults are struggling financially; according to one report, half of millennials and zoomers are living paycheck to paycheck. That's not likely to last forever, though. Even if you can only sock away $100 per month, as long as you keep increasing how much you save over time, you may well catch up to and surpass the totals above. We do tend to earn more as we get older and progress in our careers, after all.

Consider taking a little time to brainstorm how you might boost your earnings, so that you'll reduce financial stresses in your life and so that you'll have some money to put away for your future. Here are some ideas:

  • Ask for a raise every few years. Your chances of getting a raise will increase if you deserve a raise -- so make your value clear. (According to a Payscale.com report, only 37% of survey respondents had asked for a raise, and a hefty 70% of those who asked got one.)
  • Consider looking for a better-paying job -- or even a better-paying career. Earning an additional degree or professional certification can help.
  • Work on paying down your debts, in order to free up more money.
  • Take on a side gig or two -- for a short time or a long while.

So if you're young, don't despair about your financial future. There's a lot of time ahead of you, and potential for you to make and save a lot of money.