Why More Young Adults Are Choosing Cash Savings Over Investing Right Now
Financial advisors and money experts often say that investing is the key to financial stability and wealth. Despite this, today's young adults are opting to put more of their money into savings than into investments.
Between inflation that never seems to fully cool off, a job market that feels one bad headline away from layoffs, and savings accounts finally paying real interest for the first time in years, stashing cash looks less like playing it safe and more like playing it smart.
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While prioritizing savings seems to make sense, experts warn that there are long-term trade-offs for this move. Here's what's really behind the shift toward cash, and where it can quietly work against you.
Cash Is Finally Paying Off
Two forces are driving young adults toward cash right now, and both boil down to the same thing: money that used to just sit there is finally working for them.
The first is timing. "Following the interest rate hikes in 2022, cash has been paying well," said Corey Bates, financial and investment advisor at Solomon Financial. Young adults have discovered high yield savings accounts (HYSA) and money market funds can provide a 4% to 5% yield, which, according to Bates, “feels much safer... than the stress of watching their portfolio bounce around during periods of volatility.”
There's also a psychological payoff, he added. Actually seeing the interest in your account hits different than watching a portfolio balance flicker.
The second is the economy. Tax and investment strategist at Scorpio Tax Management, Jörn Kleinhans said, “Economic uncertainty, market ups and downs and just the high cost of everyday life are pushing a lot of people in their 20s and 30s toward cash."
Young Adults Are More Risk-Averse
Market volatility isn't just background noise for young adults; it's actively shaping how they save. “Inflation, layoffs and geopolitical tensions have influenced many young adults to create a bigger safety net,” said Bates.
Moreover, young adults are juggling competing financial obligations and want money that is immediately accessible. "Many are dealing with student loans, expensive rent or saving up for a house," said Kleinhans. “It makes sense they want cash they can actually use if something comes up.”
When Cash Becomes a Liability
While cash savings can provide stability and flexibility, it is important to note that inflation is still elevated, which brings risks. Bates said, “Sitting on too much cash and delaying investing can erode your purchasing power. Investing early provides more time for compounding and growth in the future that has the potential to far outpace inflation.”
Kleinhans agreed and pointed to a pattern he's seen play out repeatedly. “Time in the market is one of the best advantages young people have," he said. "I have seen clients stay in cash too long and then realize later their money didn’t grow enough for retirement or other goals.”
While young adults may like the feeling of having a cash buffer, they could miss out on years of compound growth.
The Best Strategy Is Usually a Balance of Both
Rather than choosing between saving and investing, people should focus on building both security and long-term wealth at the same time.
“We recommend our younger clients build out a three- to six-month emergency fund,” Bates said. “Once we are comfortable in the short-term, we want to let our money really get to work for us in the long run, compound and build wealth.”
Kleinhans also stressed the importance of getting a 401(k) match from employers, as “that’s basically free money.”
Cash can absolutely buy peace of mind during uncertain times. But young adults who avoid investing entirely may end up paying for that peace of mind later — with interest.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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