Gen Z writes its own rules for financial security

Lian Zhang is only 22, but she’s already nervous about how she’s going to afford a house or her future children’s college education. 

Ms. Zhang did everything “right.” Growing up in a low-income immigrant family on the outskirts of Los Angeles, she was able to graduate from a four-year college last year, thanks to hard work and federal aid. Her dream was to help other underserved students navigate the education system.  

“I want to serve lower-income communities or marginalized groups,” says Ms. Zhang, who works as an admissions counselor at an online university earning $43,000 a year. But she also hopes to support her own family, including buying a house for her mother. She worries that a middle-class salary won’t be enough. “Maybe it’s better that I make more money now and retire early or save up so that I can donate or help that group later on, when I’m more well-off.”

Ms. Zhang is part of Generation Z. These young Americans, born after 1995 and dubbed “Zoomers” during the pandemic, now make up 20% of the population and a fast-rising share of the workforce. They are the most racially diverse generation yet, and are generally known for their viral TikToks and hypersensitivity to social causes.  

This generation is reaching adulthood with no shortage of difficult financial decisions and challenges on its plate. Having observed the Great Recession as children and now being young adults of the pandemic, Gen Zers understand financial stress. Many entered the workforce at a time of layoffs and pay cuts and vanishing jobs, and a high number have experienced poverty. Yet amid the financial insecurity, this generation is responding with a blend of hardheaded pragmatism and nontraditional efforts to make economic opportunity more inclusive. 

“What [young] people are saying is, ‘Hey, this pandemic almost killed me. So I want to really think about what’s valuable ... and what’s important in life,’” says economist William Cunningham, who believes the current moment is proving to be a time of societal recalibration. “You can’t catch up. So what that means is that you’ve got to change the parameters, the environment, which you’re in.” 

Stock market strategies 

The job market is on the mend in comparison with the height of the pandemic a year ago – employers added 850,000 jobs in June alone. But the roots of financial anxiety among young adults may have sprouted long before the pandemic. 

Gen Zers have seen the generation before them, millennials, struggle to pay back student debt, often delaying homeownership. Gen Z already holds $115.5 billion in student debt, and the cost of living continues to outpace wages in many urban areas. In 2020, some 30% of Gen Zers already had credit card debt. Not surprisingly, money is a “source of significant stress” for 81% of Gen Z survey respondents between the ages of 18 and 21, according to a study conducted by the American Psychological Association. 

Rising costs of housing, health care, education, and child care have compelled these young people to pursue high-paying jobs in finance, business, and technology. 

“What we’ve noticed is that Gen Z seems to take a much more functional, rational approach to their money overall, even with being younger,” says Kelly Lannan, vice president of young investors at Fidelity. “A lot of folks within Gen Z want to actually learn from the generation before them,” she says. “They are a bit more risk-averse.” 

The COVID-19 pandemic has only solidified these patterns. Half of the oldest Gen Zers said they or another household member lost a job or took a pay cut as the pandemic began, according to a Pew Research survey from March 2020. That came as poverty rates were already higher among adults aged 18 to 24 – around 1 in 5 young adults – than for most other age groups, as individuals move out of their parents’ homes, earn low wages, and are less eligible for public benefits.

For a growing number of young Americans, investing early is a way to quell financial anxiety.

“[Investing] definitely seems beneficial,” says Bowen Popkin, a recent high school graduate from Massachusetts who started dabbling in the stock market during the pandemic. “In Finland, you can be poor and happy. Here, not so much,” he says. “That inspired me to build personal wealth and just take it upon myself.” 

User-friendly apps such as Robinhood are making it easier for Gen Zers to try their hand at investing, and young people are turning to YouTube and Reddit to educate themselves in financial strategies. One survey found that 22% of Gen Zers began investing before they turned 18, as compared with only 8% of millennials. And the decentralized appeal of cryptocurrency and the GameStop saga earlier this year have pulled even more young investors into the fold. 

Social impact investing

For many Gen Zers, investing is more than just a way to secure financial stability. Beyond profit alone, young adults are investing with specific values in mind: inclusion and social impact.

“When they have a little bit of freedom and disposable income to decide where to spend their money, it’s going to be in a way that doesn’t always maximize material return,” says Josh Packard, executive director of Springtide Research Institute. Instead, he says, they will spend “in a way that signals alignment with who they are and what they want to be in the world.”

The rise of cryptocurrencies like Bitcoin and Dogecoin may actually be evidence of this generation’s eagerness to seek out innovative solutions to problems it is facing, such as distrust of financial institutions. By putting trust in a decentralized community of cryptocurrency, young adults have created an entire financial system that doesn’t depend on the whims of big banks, says Dr. Packard.

“We’re not necessarily investing like my parents were for the biggest return so that they could be financially comfortable,” says Vivek Pandit, a 23-year-old who works at a startup in Philadelphia that helps companies recruit underrepresented talent. 

“That is a priority for us, but we’re investing with a mission. When we used Robinhood, it was to prop up GameStop and take down the hedge funds. When we’re investing in crypto, it’s to prove that this whole decentralized idea of currency can actually work.” 

This twin focus on financial security and a change-the-world mission may be, in part, the logical outcome of current uncertainties – whether Social Security benefits will endure or whether projections of a lean era ahead for stock market returns will come true.

For many young people, social impact investing – not mere profit – is the future of the financial system. This shift isn’t taking place just because it’s the “moral” thing to do, says Mr. Pandit, but because social impact is the only business strategy that makes sense.

“Generation Z is the most ethnically diverse generation ever, and by the time we’re the mass consumers in the marketplace, companies that don’t look like us won’t know how to cater to us, and we’re not going to buy from them,” he says, referring to companies’ commitments to diversity and the environment. 

Financial inclusion

In addition to investing and consuming more consciously, some Gen Zers are organizing to demand new rules for the economic game. 

In the San Francisco Bay Area, a group of young people from low-income backgrounds is developing a youth economic bill of rights to build a fairer, more inclusive playing field. 

They are part of an organization called MyPath, which supports low-income young adults, and especially people of color, on paths of economic mobility and wealth creation. “We haven’t, as a country, really been as thoughtful as we could be about investing in this 16- to 24-year-old population,” says Margaret Libby, founder and CEO of the nonprofit. 

Most of the young people the organization serves are simply trying to establish themselves in the workforce, navigate banking, and build up wealth from nothing – often on salaries that barely cover the bills. Even so, they aren’t focused only on themselves.

The youth economic bill of rights includes banking access, quality financial education, financial coaches, affordable higher education, a guaranteed income, and the right to participate in policymaking. 

“They just need a seat at the table,” says Ms. Libby, “so they can be part of defining what the needs are – and what the right solutions are.”