Our generation increasingly faces economically challenging issues including a college debt crisis, stagnant wages and a global slowdown. Simultaneously, studies show Generation Z is more financially literate — that is, has a basic understanding of their finances and financial systems as a whole — than previous generations. We have a great opportunity and the knowledge necessary to be responsible with our money as we reach our late 20’s.
We should not be wasting our financial literacy on the instant gratification of trends, when we may not be able to keep it up.
A report by the National Retail Federation (NRF) released this past October found that Gen-Z, defined by the NRF as those born between 1995 and 2012, is materially influencing family purchasing decisions and contributing more of their own funds “compared with a decade ago.” Just as Gen-Z’s financial literacy is higher than that of Millennials, so is our consumption. It’s simply illogical to assume sound financial values and considerably higher consumption will coexist in the long-run without one overtaking the other.
According to the 2017 State of Gen-Z” National Research Study, only 12% of respondents out of 2,004 (half of whom are Gen-Z) said they plan to start saving for retirement during their 20’s. The Center adds that “the number of Gen-Z planning to start saving for retirement needs to go way above 35% in their 20’s if the generation is going to have enough time and accumulated financial resources to one day retire comfortably.” This is a staggering statistic, which compels our generation to save.
57% of Gen-Z (in this study, that means people born between 1997-2012), have “no idea of where their own personal savings come from,” according to Northwestern Mutual’s Planning and Progress Study, a significant amount more than the general public (46%) and their Millennial counterparts (48%). For prime financial fitness, Gen-Z needs to stop assuming financial invincibility and start spending with caution.
Ann Hodgson, an income and expenditure manager at Euromonitor International told Business Insider, “Growing up during the global financial crisis, Gen Zers are realistic and mindful of financial issues and future career from a younger age.” Take this and add the fact that wage growth has deteriorated in the past decade and it is currently 30 percent more expensive to belong to the American middle class, which is rapidly declining in the first place. Plus, the real average wage has the same purchasing power as that of the average American from forty years ago.
Gen-Z is a triple threat through indirect, direct, and household purchasing power. First, our influence over household spending is demonstrated in how we buy in the consumer, luxury, and retail sectors, according to Boston Consulting Group (BCG) and Altagamma’s 2019 True Luxury Global Insight Report.
Additionally, instant gratification through drops, special collections or limited editions lure Gen-Z further into luxury. The True Luxury Global Insight Report states that experiential luxury Gen-Z consumption clocks in at 67% who purchase luxury pieces from collaborations, including ostensibly prestigious collections Louis Vuitton & Supreme and Chanel + Pharrell, 17% higher than those who purchase overall “true” luxury. Meaning, innovation, in the form of new collections and experimental streetwear, has yielded an increase in spending from Gen-Z. It’s working in getting to our wallets.
Second, according to IBM and the NRF, Gen-Z has secured a current $1TR in indirect spending power by influencing how our households spend. According to Research and Markets’ March 2019 report, “In the US, it is estimated that Gen Z has a direct spending power of $29 billion – $143 billion and an indirect spending power of $600 billion, adjusted for inflation.” Third, Gen-Z has a strong direct buying power of $200BN domestically. On Gen-Z’s influence in the luxury market in particular, Sarah Willersdorf of BCG says, “They have a powerful influence in the market and have a different set of values and ideals than even the Millennials.” BCG and Altagamma also concluded that 95% of the Gen-Z respondents recognized luxury’s collective influence on young peoples’ consumer behavior. This means newer, experimental collections are getting to our wallets.
You might say, well, Gen-Z is not wholly responsible for our financial fitness. I agree. I believe it’s only socially responsible that luxury houses, and really, the consumer sector at large invest sustainably in their customer base’s financial well-being and initiate a mutually beneficial relationship. This will only enhance brand loyalty on the part of the consumer, and gain the firm a reputation of good governance and sustainable operations, which will in turn attract investors.
I’m not advocating for a complete overhaul of a spending culture to which many of us willingly if not gleefully subscribe, but I believe, when spending on luxury, the consumer must always have a core sense of a long-term savings trajectory. I worry that our priorities are warped and that given Gen-Z’s dependence on their parents’ values in establishing their own, those families who don’t prioritize teaching saving will end up with overspent kids. Kids in debt, and that will be their legacy if we don’t do something.