What work and financial prospects await the Generation Z?

There’s a new cohort in town. Goodbye Millennials, welcome Generation Z, also known as Zoomers. Tech-savvy, entrepreneurial and climate-aware, those born between 1996 and 2010 are starting to enter the workforce and flex their financial muscle. In the longer term, they may also inherit a lot of capital stemming from the baby-boomer generation, a transfer that could influence the shape of investment markets for decades into the future.

At first glance, the financial fortunes of the latest population cohort to reach adulthood do not look particularly promising. They have come of age against the backdrop of a global financial crisis, a pandemic that has killed nearly seven million people worldwide, and the growing menace to the human environment of climate change. Meanwhile, in many countries cash-strapped governments have stopped paying for Generation Z’s further education, extended retirement ages and halted other social benefits.

They are striking out for independence at a time when it has never been more expensive to do so. The average property price in Luxembourg exceeds €1 million in 2023, at a time when the average salary is €72,250, and home ownership appears increasingly out of reach for younger generations, unless they inherit property. The rental market isn’t much better, with the average one-bedroom flat in Luxembourg City costing €1,610 a month.

Portfolio careers

At the same time, their careers are likely to be less secure, both by choice and necessity. With retirement a distant prospect, this generation are more likely to adopt much more of a portfolio career than their parents, characterised by short-term and project-based work, some formal employment and back-to-education breaks. So far it appears they are firmly rejecting careers that require a dull grind to the top: the legal profession, for example, has generated much less enthusiasm from this cohort than in the past; young people today scorn it as staid, sexist and inflexible.

They have grown up in less financially secure households. A study in 2020 by the Washington, D.C.-based Pew Research Center found that half of older Gen Zers aged between 18 and 23 reported that they or someone in their household had lost a job or taken a cut in pay as a result of the Covid-19 pandemic. This compares with 40% of Millennials (born between 1981 and 1995), 36% for Gen Xers (1965 to 1980) and just 25% for baby boomers (1946 to 1964).

They are savvy in their use of the internet, which influences how they make decisions – including financial ones.

However, the new cohort has a unique set of skills that employers cannot do without. They are ‘digital natives’ – the first generation to grow up with the internet as part of daily life. Unlike Millennials, who had to navigate the rapids of social media without a paddle, Gen Zers are far more adept at curating their online presence. They are also savvy in their use of the internet, which influences how they make decisions – including financial ones.

Financial constraints

However, these skills are unlikely, at least in the medium term, to confer on them significant wealth, most of which remains in the hands of their parents and grandparents. Many have significant debt, a hangover from their education, which constrains their ability to set money aside for a deposit on a home, their retirement, or even to live independently from their parents.

A significant majority of Gen Zers (61%) say they are somewhat or very financially dependent on their parents, according to a recent survey by Experian. While previous generations have always been relatively cash-strapped in their 20s, this generation faces a uniquely complex set of financial constraints.

However, they have one significant element in their favour – they stand to inherit much of the wealth of the baby boomer generation, estimated at $70 trillion in the US alone. This transfer of wealth could ultimately provide Gen Zers with enormous financial power and an outsized ability to influence companies, society and governments. They may ultimately end up better off than any previous population cohort as wealth gradually trickles down the generations, but most of them will have to wait a while to receive it.

Generation Z’s attitude to saving and investment is likely to be very different from those who came before.

Generation Z’s attitude to saving and investment is likely to be very different from those who came before. McKinsey’s analysts say: “Feelings of climate anxiety are widely reported: many Gen Zers report that they think about the fate of the planet on a daily basis. Known for their idealism, they’re part of a new wave of inclusive consumers and socially progressive dreamers.” The consultancy argues that this generation demands purpose and accountability in the companies with which they engage, a trend that is likely to filter through to their investment priorities. Mais à la condition de prévenir le directeur de l’existence de ce don et de son auteur (sans obligation d’en préciser le montant)

Passing wealth on

Many older people recognise a significant disparity between the opportunities afforded to them and those available to their Generation Z children and grandchildren, but there are ways they can help. One of the most important of these is inheritance planning, to ensure that money is distributed fairly and efficiently to the younger generations.

Older generations may also need to recognise that Generation Z may need more help to become independent than previous cohorts, and passing on wealth at an earlier stage may be a necessary part of this process. Financial help with education costs, housing and even living expenses in the early years of their career could be vital in helping them launch independent lives. A recent survey from US personal finance website Bankrate found that the four key financial priorities for Generation Zers were paying for education, beginning a career, establishing a budget and starting an emergency fund – certainly not fast cars or early retirement.

The four key financial priorities for Generation Zers are paying for education, beginning a career, establishing a budget and starting an emergency fund.

Generation Z has had to grow up with insecurity, and the financial future of its members looks equally uncertain. They may be well educated and tech-savvy, but they will have to survive without the cushion of state support that helped their parents and grandparents. They may ultimately inherit a large amount of wealth, but in most cases that won’t be for many years, so in the meantime the older generations need to think about what assistance they can offer.