Three-quarters of Generation Z would rather have a better quality of life than have extra money in the bank, an Intuit report shows.
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For most people, the goal is to work hard, save money, and retire early. However, there is a trend towards “soft saving” emerging among younger workers that is challenging traditional thinking.
Gentle saving is about putting less money into the future and using more of it for the present.
According to Intuit’s Prosperity Index Study, Generation Z – a generation that values experiences over money – is leading the so-called soft saving wave. “Soft saving is soft living’s answer to finances,” the report says.
A “gentle life” is a lifestyle that embraces comfort and low stress and prioritizes personal growth and mental well-being.
Younger generations value a balance between the traditional rush to save every single penny and using some of their extra income to enjoy life now.
By Ryan Viktor
Vice President, Financial Advisor at Fidelity Investments
The report found that the approach of Generation Z – those born after 1997 – to investing and personal finance is “softer” than in previous decades.
What does that mean? This means that younger investors tend to put their money behind causes that reflect their personal views.
They also look for an emotional connection with brands and professionals they want to interact with, Liz Koehler, head of advisor engagement for BlackRock’s U.S. wealth advisory business, told CNBC.
Are people saving less?
Younger workers have a desire to overcome restrictive financial constraints.
Three-quarters of Generation Z would rather have a better quality of life than have extra money in their banks, the Intuit report shows.
In fact, Americans’ personal savings rates today appear to reflect the trend toward soft savings.
According to the US Bureau of Economic Analysis, Americans will save less in 2023. The personal savings rate – the portion of disposable income that one sets aside for savings – was significantly lower at 3.9% in August, compared to the past average of 8.51%, according to data from Trading Economics dating back to 2020 Dating back to 1959, it took a decade.
One of the reasons for the decline in personal savings is the recovery from the Covid-19 pandemic, said Ryan Viktorin, vice president of financial advisor at Fidelity Investments, a financial services company.
As Americans have spent significantly less during the pandemic over the past two to three years, but most people are likely spending much more now to make up for lost time, she told CNBC.
In addition, inflation makes it more difficult for people to cover their expenses or save, Koehler said.
The decline in personal savings rates also reflects a change in the financial goals of today’s workers.
As younger people enter the workforce, they bring with them new financial priorities and are more inclined to strike a “balance between the traditional rush to save every single penny and using some of their extra income to enjoy life now,” said Viktorin.
Retirement and savings
Retirement is the grand finale for most workers. However, more and more people are worried that they may not be able to retire at all.
A report from Blackrock shows that by 2023, only 53% of workers believe they are on track to retire with the lifestyle they want. Lack of retirement income, concerns about market volatility and high inflation were cited as reasons for workers’ lack of confidence in retirement.
Spending money on things that make you truly happy is great… [but] People should satisfy their short-term needs and keep their long-term goals in mind before freely spending money.
Andy Reed
Head of Investor Behavior at Vanguard
Younger workers also share the same opinion: Two-thirds of Generation Z are unsure whether they will ever have enough money to retire.
However, for the younger generation, this fear may not be as big of an issue, as most are actually aiming to retire early – or retire at all, as Intuit’s report shows.
Additionally, the Transamerican Center for Retirement Studies found that nearly half of the workforce either expects to work past age 65 or has no plans to retire.
Traditionally, retirement means the final exit from working life. However, experts noted that the definition of retirement also changes from generation to generation.
About 41% of Generation Z and 44% of Millennials – those currently in between Between the ages of 27 and 42, they are significantly more likely to want to do paid work Retirement.
That’s more than the 31% of the generation surveyed
This increasing preference for lifetime income could potentially make the act of “retiring” obsolete.
Even if younger workers have no intention of leaving employment, there are still efforts to increase their retirement savings.
Fidelity’s second quarter A pension analysis found that Millennials and Generation Z are still the biggest beneficiaries of the 401(k) savings plan, a retirement plan offered by American employers that offers tax advantages for the saver.
The report found that in the second quarter of last year, average 401(k) balances for Generation Z and Millennials increased by double digits – Generation Z saw a 66% increase and Millennials saw a 24.5% increase.
What do people spend more on?
However, one question remains: Where do people direct their money when they spend more and save less?
Intuit’s study found that Millennials and Generation Z are more willing to spend on hobbies and non-essential purchases compared to Generation X and Baby Boomers.
About 47% of Millennials and 40% of Generation Z expressed the need to have money to pursue their passion or hobby, compared to just 32% of Generation X and 20% of Baby Boomers.
Experts highlighted travel and entertainment as some of the non-essential experiences that are a priority for the younger generation.
Andy Reed, head of investor behavior at an investment management firm Vanguard said Gen Z spending on entertainment rose to 4.4% in 2022, compared to 3.3% in 2019.
Additionally, Americans are “refocusing on travel post-pandemic,” which is one possible reason personal savings rates are falling, Fidelity’s Viktorin said.
Gentle saving is gentle living’s answer to finances.
Intuitive
Prosperity index study
Although the younger generation saves less, that doesn’t mean they live paycheck to paycheck.
In fact, “Gen Z appears to be living within its means, and their increased spending appears to be driven by rising costs of essential goods rather than an increasing preference for luxury,” Reed noted.
“Spending money on things that make you truly happy is great… [but] “People should meet their short-term needs and pursue their long-term goals before spending lavishly,” he added.