Up until now, much of the focus has been on millennials, and how to attract and satisfy the needs and wants of this segment. And rightly so, as they are set to make up 25% of the workforce by 2025. As the industry starts to get to grips with how best to serve the millennial market, savvy strategists should start to look beyond this segment and identify ways to appeal to the next generation of investors. It’s time to take a closer look at millennials’ successors - Generation Z.
Meet Gen Z. Children of Gen X.
Born after 1996, this generation grew up in a relatively healthy and stable economy (unlike their millennial siblings who came of age during the 2008 Great Recession). However, the pandemic has hit Gen Z the hardest, with half of older Gen Z’ers (ages 18 to 23) stating that they or someone in their house had suffered a loss of income or employment due to the pandemic.
Facing uncertainty from having to navigate market turbulence and political upheaval during their formative early adult lives, Gen Z has begun entering their peak working years which are set to last until the second half of 2030.
While they do bear some similarities to millennials, there are some clear differences between the two generations. These differences have ultimately shaped how they view the world and what their priorities are. Here are a few key differences:
- They are the first generation to have grown up with cell phones, and as such, the convenience of mobile technology and apps has been ingrained in their daily habits from a very young age. A report by Morgan Stanley indicates that 60% of Gen Z used a cellphone before the age of 14.
- They grew up in the social media boom. Since Myspace first started in 2003, and later Facebook in 2004, social media and virtual connectivity have been the norm for this generation. They have been the biggest drivers of social media developments over the years - particularly with more video-oriented apps such as TikTok.
- Gen Z is on track to be the most educated generation yet, with Pew Research data indicating that they are less likely to drop out of high school and more likely to be enrolled in tertiary education.
- In terms of societal shifts, Gen Z and Millennials have similar views, with Gen Z slightly more progressive than other generations. 35% of Gen Z personally know someone who prefers gender-neutral pronouns, versus 25% of Millennials, 16% of Gen Xers and 12% of Boomers. Just under half of Gen Z and millennials say that same-sex marriage is good for society, compared to 33% of Gen X and 27% of Boomers.
- Pew Research indicates that Gen Z is more racially diverse than previous generations, with 48% of Gen Z in the racial or ethnic minorities group, compared to 39% of Millenials. In the UK, 40% of the population is estimated to be non-white by 2061.
Gen Z is showing signs of being highly engaged with their investments.
While still relatively new to investing, data shows that Gen Z is highly active - far more so than their predecessors. Data from Nasdaq suggests that 34% of Gen Z make multiple trades per week, compared to 26% of Millennials, 19% of Gen X, and 7% of Baby Boomers (ETPs are empowering the next generation of investors, 2022). Gen Z is far more likely to regularly check their portfolios, with 48% indicating they log in several times per day compared to 16% of Gen X and 10% of Baby Boomers.
While this eagerness shows great promise, history has shown that frequent trading doesn’t bode well for long-term financial success. Having been heavily affected by the pandemic, this type of investment behaviour is concerning for this generation as it will stunt their financial well-being journey.
When it comes to platform preference, newer entrants are gaining favour amongst younger cohorts. An astonishing 64% of Gen Z respondents indicated that they would choose Robinhood whereas only a smaller percentage would choose Vanguard or Fidelity, 38% and 29% respectively. The appeal of these newer platforms lies in the commission-free structure and easy-to-use digital tools that enable first-time investors with lower dollar amounts to access the financial markets.
With Gen Z preferring a more hands-on approach to managing their portfolios, they consult a variety of information sources, such as podcasts, online discussion boards and social media, when making decisions about buying or selling. However, sound financial expertise still came out tops, with Gen Z ranking financial advisors as the most trustworthy source of information.
Tactics and non-negotiable standards to attract and retain Gen Z
While they do bear some similarities to millennials, providers would be sorely mistaken if they were to assume that Gen Z is just a younger version of millennials. As a segment, they face a different set of challenges, and providers will have a significant competitive advantage if they can build up their internal capabilities to understand them on a deeper level. Here are some key things to get right in order to meet the demands of Gen Z, and retain them well past their peak earning years:
- They value financial advice, but most are not in a position to pay the high fees associated with it. As they’re just entering the workforce, most of them will be on entry-level salaries. With the cost of living increasing after the pandemic, providers need to meet this segment halfway when it comes to advice accessibility. Digital advice tools can be a great way to offer advice, without impacting the bottom line. Gen Z has grown up in a digital-first world, and digital advice is a great way to give them the support and advice they need in the palm of their hand. As they start to climb up the salary ladder, providers can then start to look at more personalised advice offerings for this segment.
- As mentioned before, this segment is particularly concerned about societal issues. Diversity in the workforce should be a top priority for providers, especially at the executive level. If your marketing campaigns are touting diversity and inclusion, but in reality, your executive board is all male, white, cis-gender dominated, then Gen Z will call your bluff. Gen Z would rather choose to align themselves with providers who are a force for societal good.
- Slick, intuitive digital experiences are non-negotiable for Gen Z. If your online systems and customer portals do not deliver the instant gratification that they are looking for, they will seek out other providers. Providers need to evaluate the entire customer journey, and leverage fintech tools to make this experience as seamless and interactive as possible. Providers need to utilise fintech tools in symbiosis rather than isolation, to create an online environment that utilises data to intelligently service this generation. For example, we can use AI to process the data generated by interactive dashboards and digital financial calculators to generate automated investment recommendations at each stage of their lifecycle.
- Gen Z are visual learners and respond better to “snackable” content, with a preference for video. Providers need to replace their static and text-heavy PDFs or information sources and look at marketing and fintech tools to help translate these into easy-to-understand nuggets of information for Gen Z investors.
- Digital connectivity is enormous for this segment, and providers need to ensure that their brands are visible across leading social platforms, particularly TikTok and Instagram. There has been a significant rise in Finfluencers (financial influencers on social channels), which has had both positive and negative effects on this segment. A quarter of Gen Z has stated that they have seen their friends posting on social media about the money they’ve made investing. While this has encouraged some to start their investing journey earlier, it has also spurred on the “get rich quick” mentality, leading to nearly two-thirds (64%) of 16- to 25-year-olds experiencing a loss at these viral schemes. There's certainly a need for better financial education for this segment, and social media might be the key for providers to attract this segment and enable better financial outcomes.
It goes without saying that they will be the biggest generation ever - there are almost 2 billion of them currently! The sheer number and earning potential of this segment is an enormous opportunity for financial service providers, and they are the key segment to attract if firms want to stay in business over the next 30 years.