What are the different generations’ relationship with money?

What do residents spend their money on? What are their main concerns? Which payment methods do they prefer? myLIFE interviewed Catherine Bourin, Member of the Management Board and Head of the Sustainability & Conduct department at ABBL, on the relationship that different generations have with money. Here is what she has to say on the topic.

What are the main concerns and wishes of the different generations today?

As part of our financial education outreach, we had the opportunity to meet with some Luxembourg student associations. All Generation Z (aka Gen Z) students receive a grant from the Luxembourg government. Some behave like grasshoppers, and others like ants. The “ants” are afraid of spending money, and prefer to hoard it, tightening their belts to be able to save for a rainy day. In contrast, the “grasshoppers” find themselves, for the first time, with a healthy, and indeed comfortable bank balance. They have never had so much money before, though, and it’s burning a hole in their pockets. On top of this grant, some students take out a loan for social reasons to supplement their income, while others choose to invest it in order to make the most of it. These investments may or may not entail risk, but more intrepid investors may turn to cryptocurrency, for example. The older age brackets approach such investments with greater caution, as they are based on new concepts that may be more difficult for them to grasp.

As a group, Millennials are very receptive to new technologies, but tend to be more cautious than Gen Z.

For their part, Millennials are embarking on their careers and family life. Still very receptive to new technologies, they tend to be more cautious than Gen Z because they are starting to think about having children or getting on the property ladder. This age group will save for a property purchase, which is their biggest financial outlay. How long they need to save for will depend on their income. A distinction can be made between young professionals in the public sector with higher salaries, and those working in the private sector with lower salaries who find it harder to purchase property and look for accommodation in neighbouring countries as a result.

For older populations (Generation X and Baby boomers) who managed to buy when the market was more accessible and have already repaid their mortgage, this is no longer an issue. The main concern (for the most well-off) will be to help their children who are not in as comfortable a position, or to look at donating their money to charity.

What do they spend their money on first?

For Millennials, 30% or more of their wage goes on housing, in the form of rent or mortgage repayments. Their second biggest expense is energy, which, including heating and transport costs, is the biggest item. Millennials therefore try to save when it comes to leisure expenses.

Gen Z are struggling to plan for the future.

This restrictive trend is also evident within Gen Z. This group has spent a portion of its youth in a state of acute crisis: firstly that of COVID-19 and then the Ukraine crisis. Not forgetting the climate crisis. This generation is paying for its predecessors’ mistakes and therefore struggling to plan for the future.

The other two generations have a higher, and apparently easier, standard of living than Gen Z. Baby boomers and Millennials were able to purchase property at attractive interest rates and save for the future, so they have more opportunity to treat themselves and plan for a comfortable retirement.

Which payment methods do they prefer?

In terms of payment methods, we see that the older population rarely uses online transfers. This is particularly true of people aged 75 and over. They find digitisation a challenge and still prefer to pay with cash or a bank card. We find that this stems from a lack of trust among this group. To make bank transfers, they prefer to use counter staff rather than digital methods. Those aged under 75 and who have become accustomed to using computers for work have had the opportunity to familiarise themselves with online banking, which has truly taken off, particularly during the pandemic and the various lockdowns.

For younger people, it’s the other way around. Cash is less of a draw for them. Gen Z in particular increasingly favour online banking or scan QR codes to pay their bills using their smartphones. In general, there was a sharp rise in the use of online banking between 2019 and 2020¹. Although Payconiq (formerly Digicash) has seen more take-up by young people, it has proved less popular among the Baby boomers. Like Generation X, the latter group are concerned about IT security and are more hesitant to use their watches or mobile phones for payments, out of fear of losing them and allowing others to use them at their expense.

According to research by the European Central Bank², it would appear that southern nations tend to use cash more. I would say that trends differ from country to country. In Luxembourg, the use of cards has overtaken cash, for example. Particularly during the COVID-19 crisis.

38% of Luxembourg residents’ money is held in current accounts, and 44% in savings accounts.

What about investing?

If we look at where Luxembourg residents keep their money, 38% is held in current accounts, and 44% in savings accounts. Citizens generally prefer to hold on to their money rather than investing it. The same happened after the 2008 financial crisis, which both the Baby boomers and Generation X went through, losing some trust in the process. Gen Z and Millennials prefer to save their money for the future or to buy a home.

Based on your observations, how do the different generations view money? Do they have any preconceptions about money?

Based on what I have observed, how a person views money depends less on their generation and more on their family background. In better-off families, for instance, parents will take the time to explain to their children how to manage their money. On the other hand, it is still a taboo topic for families with tighter finances, and sometimes debt. Children may harbour negative feelings towards money. This view may change, however, from one generation to the next within the same household. It all depends on the way in which individuals change from a financial perspective.

What resources are used most to manage their money?

For Baby boomers and retired people, visiting a local branch is seen as a necessity, but also as an opportunity for an outing. In contrast, younger people (Gen Z and Millennials) don’t see the need to speak face to face with their banker, because all transactions can be performed online or via smartphone nowadays. In-person contact is now on the decline in certain situations: loan applications, and money management advice for investing or obtaining information about sustainable finance, which might be of increasing interest to younger generations. The regulatory framework means that financial advisers will soon need to check their clients’ preferences and expectations in this regard. The search for sustainable investment products may then present an opportunity for younger generations to meet their banker in-branch to get more information about the impact of these investments on the environment and society.

Money is no longer tangible. Some young people wonder why we don’t revert to using gold, on which currency was historically based.

Through digitisation, we have reached a higher level of abstraction. Money is no longer tangible. Some young people wonder why we don’t revert to using gold, on which currency was historically based, especially in the face of substantial uncertainty, at a time when it is not possible to exchange the hryvnia owing to the war in Ukraine.

What sources do they get their financial information from?

We see that there is significant reliance on the internet (particularly among the younger generation) and bankers and, equally, parents when they are in a position to answer their children’s questions.

¹ Sondage de l’ABBL « Retail banking survey »
² Source « Study on Payment Attitudes of Consumers in the Euro area” (SPACE)