How Generation Z Is Changing Financial Services

By Tyler Mondres

“Generation Z” is the generation following millennials. Born roughly between 2000 and 2015, these young adults already have an estimated purchasing power of $44 billion. While millennials remain the largest demographic in the United States, according to Bloomberg analysis, Gen Z will edge past them globally next year by half a percent, comprising 32 percent of the global population of 7.7 billion people. Millennials already make up the largest portion of the U.S. workforce, at 35 percent. When Gen Z is included, two of every three labor force participants in the U.S. is a young adult.

Millennials began their lives with historic levels of student loan debt and lower earnings prospects than their predecessors. Compared to Baby Boomers at the same age, millennials have half the net wealth, half the accumulated assets, and median wages have declined by 20 percent. Today’s young workers with debt and a degree make roughly the same as workers with no degree in 1989. Consequently, many are delaying major life events that brought previous generations into the banking system. This has had a profound impact on Gen Z, which has grown more skeptical of traditional institutions (like college) and wary of taking on debt.

Although millennials are delaying life milestones like marriage, homeownership and parenthood, they still want to start a family and settle down. Thirty percent of millennial parents say financial considerations played a major role in their decisions about whether or when to start a family. Thirty-eight percent of first-time homebuyers plan to purchase in the next two years, and 36 percent hope to buy a house within the next three to five.

Moreover, they seek help managing their finances to make these goals possible. Millennials grew up with digital technology, but Gen Z has not even known a world unconnected from the internet. Thus, they look to technology to solve their problems. The next generation of banking customers are looking for innovative financial services to help them rebuild their finances and reach their goals. They expect digital solutions to be intuitive, streamlined, and omnichannel. Three of every five in Gen Z report they will not use an app or website that is hard to navigate or slow to load.

The economic situation

Millennials have become more comfortable with their financial state, with nearly three in five reporting they feel financially secure. Despite this, a quarter of millennials still say they frequently worry about their finances. Top stressors for millennials include not saving enough (35 percent), concern about their career path (24 percent), and whether they are planning enough for retirement (21 percent). They also largely believe the stereotypes about their generation: three out of four think their generation overspends on indulgences compared to other generations, and 64 percent feel their generation is bad at handling money. Who ordered the avocado toast?

Meanwhile, those in Gen Z nearing adulthood are largely preparing to go to college or enter the workforce, and they are concerned that they do not know enough about handling finances. They seek advice from family, friends, and online searches. Top stressors for Gen Z include the prospect of finding a job after college—and the ability to pay for college. Older members of Gen Z look a lot like millennials did a few years ago. Seventy-one percent of Gen Z employees say they are moderately to very stressed about finances. Top stressors for these members of Gen Z include purchasing a home (67 percent) and living paycheck-to-paycheck (66 percent).

Although both millennials and Gen Z find themselves stressing about their finances, the majority of both millennials (83 percent) and Gen Z (89 percent) are optimistic about their financial future.

How the next gen works

Millennials continue to want engagement, empowerment and a sense of purpose in their chosen career path. They understand the importance of profit but believe corporations should also seek to innovate, provide career development, make a positive societal and environmental impact, and emphasize inclusion and diversity in the workplace. Older millennials agree, with 44 percent saying profits are prioritized at their firm but only 27 percent believing they should be the primary goal.

Work-life-balance still tops the priority list for millennials. More than half say their passions are more important than their paycheck, and 69 percent want better work-life balance, but they are pessimistic about finding a job they really like. They are also assertive in the workplace. Nearly half (46 percent) have asked for a raise in the past two years, more than any other generation, and four out of five who asked were successful. They also strongly value (82 percent) and expect employer training programs to help them develop professionally.

Gen Z has demonstrated a strong work ethic early. Nearly a quarter work a part-time job, 23 percent do occasional short-term work and 22 percent earn allowances with chores or other responsibilities—and 38 percent plan to work while they are in college. Gen Z also heavily uses YouTube for both entertainment and skills development. Eighty-five percent of Gen Z report watching a YouTube video in the last week to learn a new skill.

Similar to millennials, Gen Z would be most excited to work for a company with a fun work environment (47 percent) and a flexible work schedule (44 percent). However, in contrast to millennials, Gen Z members say they primarily value a job that pays well (72 percent), inspires them (64 percent), and has good benefits (62 percent).

When seeking employment, millennials and Gen Z largely turn to the same sources. The next generation of employees ask friends and family, people they know that already work at the company, and search job boards and company websites.

How the next gen spends, saves and banks

As millennials have grown up and moved into more adult phases of life—remember, the oldest millennials are nearing 40!—they have become just as good, and in some cases better, than older generations at handling money. Nearly two-thirds of them are saving, while 54 percent are budgeting and 57 percent have savings goals.

Of those with goals and budgets, 67 percent stick to their savings goals and 73 percent follow their budgets. Nearly half of millennials have a healthy $15,000 or more in savings, and their top savings priorities are an emergency fund (64 percent), retirement (49 percent) and buying a home (33 percent).

Gen Z has had less time to demonstrate their aggregate financial behavior, but researchers and pollsters have identified several emerging patterns in how the youngest Americans organize their finances and engage with financial institutions. About two-thirds of Gen Z’ers have bank accounts; half of them are joint accounts. Gen Z is comfortable with larger banks; 47 percent bank with major banks and 12 percent with regional banks. (Meanwhile, 12 percent bank with community institutions and 19 percent with credit unions.)

Gen Z is cautious about debt, but 60 percent of them expect to take out loans for college—with nearly half of them expecting to borrow as much as $30,000. Thirty-seven percent of them have a credit card, with 8 in 10 of those acquired at age 18 or younger, setting them up for future success in the credit markets. Four in 10 Gen Z’ers say they have created or used a budget to manage their finances.

Finally, Gen Z is optimistic. More than half say America is heading in the right direction and that the “American dream” is still alive—bigger shares than any generation ahead of them. Nearly nine in 10 feel positive about their financial futures.

About Tyler Mondres

Tyler Mondres
Tyler Mondres is a research specialist in ABA's Center for Payments and Cybersecurity and a frequent contributor on fintech topics to the ABA Banking Journal.
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