Gen Z wealth: Soft saving & holistic prosperity
Gen Z wealth - Soft saving & holistic prosperity vertical

Gen Z wealth: Soft saving & holistic prosperity

Read the Article

The late Nobel Prize-winning economist Edward C. Prescott famously said: “You can’t spend your way to prosperity.”

An entire generation of young people is challenging the conventional wisdom of working hard for 35 to 40 years—and not touching their accumulated wealth until full retirement age. And I’m not talking about FIRE (Financially Independent Retire Early).

Whether driven by the mental burnout and health challenges of their Boomer parents, demands for work-life balance early in their careers, or just a commitment to YOLO (You Only Live Once), young adults have increasingly adopted a “soft saving” approach to life. It’s about putting less money into future savings and using more of it to enjoy the present. Prioritizing experiences before money is leading the so-called soft saving wave, according to Intuit’s Prosperity Index Study.

Virtual Conference

Free vCon: Jan. 10-11

Tax Season and Advisory Readiness

Connect with tax and accounting experts and peers in our interactive
conference space to learn from the comfort of your home or office.

Understanding Gen Zs perspective

Personally, I’ve found that behavioral finance—the study of how psychology and emotion impacts decisions about money—is a great tool to explain the soft saving phenomenon. If you’re a tax accountant and advisor working with young people, it’s important to understand that their generation is gravitating toward a life focused on values and overall well-being, not just financial well-being.

In today’s world of instant gratification, economic uncertainty, and seemingly unattainable housing costs and retirement goals, long-term financial commitments can seem daunting for young people. When you compound that instability with social media’s constant emphasis on YOLO and the pressure to spend money on “post-worthy” experiences to share on their feeds, saving for the future often takes a back seat.

Intuit® research found that three in four (73%) Gen Z respondents were hesitant to set long-term goals. That’s 10 percentage points higher than the general population. Further, two-thirds (66%) of Gen Z respondents vs. 58% of the general population are not confident that they’ll ever have enough money to retire.

Mark Akeroyd, head of product for Lumiant, a behavioral finance and client experience platform, told me recently that he’s not surprised by the Intuit findings.

“The old adage of ‘keeping up with the Jones’ needs to find a nice dark hole and never be seen again,” he said. “That’s because wealth and fulfillment are deeply personal aspirations, not societal benchmarks. You set your own race and run it against yourself.”

When working with young people, we need to frame the conversation in a way that speaks to their aspirations. According to the Intuit study, Gen Z’s top drivers of prosperity include work-life balance, the ability to pursue hobbies or passions, and the ability to give back.

“When you get this right, clients can live rich, not die rich,” said Akeroyd, who pointed to the significance of prioritizing meaningful experiences and relationships over mere wealth accumulation.

Facilitate family financial conversations

Our financial habits and attitudes are most often learned within the family unit. However, families don’t always discuss finances openly. That leaves children to piece together their own understanding from their observations.

Dr. Kristy Archuleta, a financial planning professor at the University of Georgia and an internationally recognized authority on the development of financial therapy, told me on my podcast that financial professionals can make a significant impact on their clients’ lives “by encouraging and facilitating these crucial conversations about money.” By doing so, she says, “We can provide a clearer, more accurate context for young people to learn from, which is essential for them to make informed financial decisions in the future.”

Personally, I’ve found that the financial education of Gen Z should focus on traditional concepts of saving and investing, but should also incorporate value-based methods and life goals. By doing so, we can guide young adults toward a future in which financial decisions are guided by what is most meaningful to them.

Engaging clients and their Gen Z children

Here are five ways advisors can interact with, and retain, the young adult children of their clients:

  1. Initiate a dialogue about core values. Use an interactive values card exercise that prompts family members to identify their top five values. Results of the values card exercise will stimulate discussions about what matters most to each family. This will make it easier for the family’s financial advisors to do planning that aligns with the family’s values, beliefs, and aspirations.
  2. Be SMART. Use the SMART framework (Specific, Measurable, Achievable, Relevant, Timebound) to set realistic goals. For example, if protecting the environment is one of your client’s values, then a goal could be to set up a portfolio composed of companies with sustainable practices. You could also set an automatic schedule to invest in those companies and define returns that would be considered a successful outcome.
  3. Develop a Gen Z-style budget. Create a budget that accounts for Gen Z’s definition of prosperity mentioned above. Allocate funds not just for saving and necessities, but for activities and causes that bring them joy and satisfaction. This could mean setting aside money for travel, art supplies, or donations to their favorite charities.
  4. Encourage mindful spending. Help young people monitor spending habits to ensure their purchases align with their values. If they value social impact, they might choose to buy from businesses that give back to the community or don’t have a heavy carbon footprint.
  5. Introduce “future self” planning. Help clients visualize themselves decades into the future. Research by my friend, UCLA professor and author Hal Hershfield, shows that we typically view our future selves as strangers and don’t make choices with that person in mind. The antidote is to create a vivid picture of our future selves, and tell ourselves what we’ll be doing and feeling at that time. Hershfield believes this mindset helps balance their present desires with future needs.

It’s time to plan

The financial education of Gen Z should not only include traditional saving and investing, but value-based planning. Using a holistic approach to planning will ensure that their long-term financial goals align with their need for worthwhile real-time experiences.

Country singer, Kristian Bush may have said it best in his 2014 hit single:

Rory Henry, CFP®, BFA

Rory Henry, a Certified Financial Planner™ and a Behavioral Financial Advisor (BFA), is director at Arrowroot Family Office and co-founder of AFO Wealth Management Forward. He has been in the tax and financial advisory profession for 15+ years, and has created a program to help accounting professionals incorporate holistic wealth management and proactive planning services into their practice. He hosts the AFO Wealth Management Forward podcast, featuring interviews with guests from The Wall Street Journal, Forbes, Fortune, Accounting Today, CPA Trendlines, and nationally recognized accounting and wealth management thought leaders. Outside work, Rory is an avid sports fan, plays golf, and enjoys performing improv at comedy theaters throughout Los Angeles. More from Rory Henry, CFP®, BFA

Leave a Reply

Your email address will not be published. Required fields are marked *