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Unpacking the financial habits of Millennials and Gen Z

iStock 1132649233 - Global Banking | Finance

445 - Global Banking | FinanceBy Ammar Kutait, CEO and Founder of W1TTY

The financial world is undergoing a dramatic rejuvenation as we move into a technology-led era. We believe Generation Z, making up today’s adolescents, teenagers, and young adults, born between the mid-to-late 1990s to the early 2010s, are leading the change in the FinTech industry.

There is no denying that Gen Z and Millennials operate in a different financial climate than older generations, and it is no surprise that many look for new ways to manage it.

To find out more, we recently conducted a study of 2,000 participants in the UK and Europe to discover how Gen Z and Millennials act within the financial market and how this may differ from their older counterparts.

The study found that their financial practices were remarkably different from anyone else, as they have matured with access to new technologies, pressures, and financial responsibilities.

Gen Z is demanding more from the industry, in terms of their financial investments and personalised banking which only FinTech’s industries can meet. Ultimately, younger generations demonstrate an interest in obtaining financial guidance from a variety of sources, so they can develop and modify the financial industry towards a technological focus which matches their values.

Millennials & Gen Z Money Management

An individual’s ‘attitude towards money’ is an important factor in assessing their ability to recognise, analyse, handle and communicate their personal finances, in order to effectively manage their money. Money management is a vital skill as it offers a clearer perspective of where and how you want to spend your money. In turn, it can help you effectively budget and even increase savings. With good personal finance, you’ll learn to handle your money and reach your financial goal.

As Covid-19 hit the world, new generations were forced to re-evaluate their approach to financial management. We found Covid-19 helped many of the younger generations achieve financial independence; however, it also irrevocably rocked the boat as it was the first significant financial challenge of their lifetime.

Therefore, when banks or FinTechs reach out to Gen Z or Millennials, they should not assume their post-covid strategy would have a comparable impact. Our study found that 68% of Gen Z budget and save money more responsibly than their older counterparts. Furthermore, more than a third of them will have up to £1,000 in their savings, making them the generation who are the least likely to have any debt.

Recent financial research discovered that the younger generations are more financially educated than any previous generation. Many have invested their money into stock markets, cryptocurrencies and other assets. However, of the group who stated they invest in the stock market, only one in four think they could explain how it operates to a friend. The main conclusion is that while Gen Z is well-versed in finance, they lack educational depth.

This becomes apparent when Gen Z tries to manage their credit and debt. Gen Z has less understanding in this area as there is a lack of educational forums on sites they regularly use, such as social media platforms. The lack of presence has caused major gaps in knowledge, meaning many do not understand terms such as a credit score – or its importance.

By bridging educational gaps on platforms they are most likely to consume, Gen Z and others can improve their understanding of finance and continue to safeguard their path to financial independence.

Cryptocurrency taking over?

Cryptocurrencies continue to be a rising topic of intrigue for the younger generations, as many choose to invest their money into the digital currency rather than traditional savings.

Our study found that Gen Z tend to be less trusting of traditional banks compared to older generations and they have demonstrated a desire to abandon the stock market in favour of financial prosperity through the cryptocurrency market. The study found that 51% of Gen Z would prefer to receive half of their pay check in digital assets rather than fiat currency. This is supported by the fact that less than half of Gen Z has an account with a traditional bank, credit union, neobank, or FinTech, and 62% do not have a bank account.

This switch from traditional savings to cryptocurrencies is significant as it indicates that younger generations would rather invest time over money. Gen Z seems to be straying away from safer investing, which will almost ensure money back but only with a small reward. Rather, they are more inclined to invest big in unpredictable assets in the hope of a larger reward. This displays a shift in attitudes from the older to the younger generations as younger generations treat investing more brashly and emotionally, whilst older generations tend to prefer the more frugal and predictable option.

Cryptocurrencies will play a part in influencing the direction of developing FinTech innovation in the coming decade. Early adopters of cryptocurrencies tend to be the most comfortable with the market, but it has not reached mainstream acceptance yet. FinTech’s should lead the charge in positively impacting the growth in cryptocurrencies availability and adoption so it can continue to grow as an alternative to more traditional financial methods.

Financial Anxiety

Members of Gen Z have reported higher levels of stress and anxiety than their Millennial, Gen X, and Boomer predecessors did at their age, particularly when focusing on the future. This is heavily influenced by the increasing use of technology, economic instability, FOMO (fear of missing out) and the pressures of social comparisons. In fact, reports found that 51% of Gen Z fear money issues will prevent them from doing what they want.

Due to a rise in social media pressures, 37% feel compelled to compete financially with their peers,  causing poor spending and saving habits. Statistics show that 43% of the younger generation are concerned they will not earn enough money to be happy, and under a third believe the system is set up for them to fail financially. It will be challenging to break the pattern of poor spending habits, but we must help advise through customer-oriented services so they know how to operate within the increasingly over stimulating environment.

Investment Planning

Young people have changed the investing rules over the last few years. Millennials and Gen Z’s have entered the stock market, many entering with an agenda and values of how they envision the market to be in the future. Their desire to reach financial independence and separate themselves from their predecessors has caused an unpredictability which has not been seen before. This has resulted in unforeseeable swings, such as Gamestop and Memecoins, which were mostly driven by Millennial interest.

The younger generations are straying away from more traditional long-term investments and instead interested in those deemed riskier and more short-term. There seems to be less uptake in investing in fixed deposits and gold, but dramatic growth in NFTs and cryptocurrencies. As they have 20-30 years of earning potential, it is great they are showing a good risk appetite. However, there is not enough evidence to suggest they are doing thorough enough research. Research is essential to navigate the volatile waters of investing. Our research shows that only half of Gen Z investors watch financial education programs or seminars, which means the other half is missing out on important personal finance information sources.

Seeing Gen Z struggling with financial investments and literacy was the motivation for W1TTY offering unique financial knowledge designed to deliver an informative and guided experience. Gen Z are tasked with decoding an abundance of information and continue to be bombarded daily through social media platforms, false professional advertisements and the many programs or seminars available. The research found over a third of Gen Z get their information on financial literacy from TikTok and YouTube. This has resulted in them focusing on diversifying their assets, often in unpredictable or non-profitable funds.

Investing in your future

To summarise, Gen Z and Millennials have dominated financial investing. We are already seeing the effects of their presence in the market, affecting how we all work. They have entered the market with their own set of values and objectives, acting as a catalyst in what is considered a desirable investment. However, where they source their information and expertise is not necessarily the most reliable, and there is frequently a knowledge gap and insecurities that prevents them from achieving financial independence.

It is critical that the younger generation’s financial interests develop, yet they must seek different sources of knowledge to help build their confidence and inform them on where they should invest their money. If Gen Z and Millennials are shaping the future of finance, then FinTechs must provide the compass.

Global Banking & Finance Review


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