Financial Considerations of Generation Z

As Generation Z continues to explode into a larger and larger subsection of the consumer market, understanding their financial set-up is an important component for evaluating willingness to pay and driving sales.  Unlike Millennials and generations past, Gen Z grew up primarily during the Great Recession and so has a somewhat bleak and unorthodox understanding of finances.

1) Fixed Income

Firstly, the upper bound of Generation Z is about 20-21, meaning that few members of this generation have any real discretionary income.  Most live off their parents or monthly allocations from their parents and potentially have minor side hustles to get extra cash.  Typically, you will not see a person in Gen Z with more than a couple hundred dollars of extra income each month.

This means one of the biggest considerations for Gen Z spending is minimizing cost and splurge spending.  The cycle of spending a lot when you get a paycheck and barely eating due to a lack of money at the end of the month is not an uncommon sight.  Companies such as Zara and H&M have leveraged this financial change by increasing the immediacy of purchase decisions, as a nice piece of clothing at Zara is not too expensive and will not be on the shelf the next time you enter the store.  This effectively means you are forced to give up your small amount of extra income when you enter a Zara store (as long as they can produce a good you like).


2) Minimal Savings

A variety of polls asking Generation Z about their ability to get ahold of $1,000, $5,000, or $10,000 cash within 24-48 hours all indicate, this generation has virtually no savings.  Partly due to a lack of income and a familiarity of not having savings stemming back to growing up in the Great Recession, Gen Z is mostly financially illiterate.  Understanding of how credit works, how to apply for loans, smart personal finance habits, how to balance a check book, the difference between various wealth management routes, and more is not in the realm of Gen Z knowledge. Furthermore, due to their parents lack of financial stability, the increased push to go to college, and ballooning college tuition prices, Gen Z is leaving college with about twice as much debt as previous generations.  Fun fact, college debt never goes away and often prevents access to loans and mortgages, since Uncle Sam always gets paid first.  These debt considerations paired with a lack of savings will have long-run ramifications on Gen Z’s options for housing after school, ability to take out loans for graduate education or life milestones.

3) Passion Expenses

Despite this dismal financial picture, every member of Generation Z is willing to pay for quality in something.  Whether it be eating nice food every day, buying luxury clothing brands, getting high end headphones, etc. Gen Z has passion expenses.  These passions are afforded by the minimal excess income and random bursts of income from side hustles.  Whether the group will admit it or not, frequently these passions are the result of obtaining a lifestyle they wish they could have.  Something they have seen in media, on social networks, or always desired but could never have due to financial constraints growing up. Overall, Gen Z likes things and is willing to pay for them.  The key is figuring out what those things are and how to convince them that small budget should go to you for fulfilling that passion.  This is largely answered by branding and effective marketing.  Strong brands are able to sell consumers on a particular lifestyle they ought to have.  Effective marketing informs consumers in multiple pathways of benefits of a particular product or service.  Combining both lets you have a dialogue with Gen Z on what their passions are, how you serve them, and why they need to spend money on your company right now.

4) Minimal Awareness

Gen Z does not know what a 401(k) is, what is typical in benefits plans, how to file taxes, what they should look for in loans and money accounts, how to invest, what an emergency fund is, or why they need to know what any of this is.  Lack awareness is one of the biggest reasons contributing to the lack of savings and overall poor financial position of this generation. As the group continues to grow older, understanding how they differ from generations past in an understanding of financial matters will be key for the continual evaluation of their financial positions as a whole.  If they never learn how to invest in the stock market, their earning potential will stay fixed and investments will have much more risk.  If they never form an emergency fund, immediate income shocks will have huge ramifications and potential default rates will increase.  Educating Gen Z on financial awareness will be a crucial step for preventing many of these financial problems from arising.

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