Soft saving trends reshape Gen Z, millennials’ personal finance goals

For most people, their goal is to work hard, save money, and retire early. But a growing trend of “soft savings” among young workers is challenging traditional thinking.

Soft savings refers to investing less in the future and spending more money on the present.

Gen Z, a generation that values ​​experiences over money, is leading the so-called soft savings wave, according to the Prosperity Index study. intuition. “Soft savings is the soft living answer to finances,” the report states.

A “soft life” is a comfortable, low-stress lifestyle that prioritizes personal growth and mental health.

The report found that Gen Z, those born after 1997, have a “softer” approach to investing and personal finance than in previous decades.

What does that mean? This means that younger investors are more likely to put their money toward causes that reflect their personal views.

They’re also looking for an emotional connection with the brands and professionals they choose to engage with, said Liz Koehler, head of advisor engagement for BlackRock’s U.S. wealth advisory business. he told CNBC.

Young workers have a desire to be free from severe economic constraints.

Three out of four Gen Zers would rather have a better quality of life than have extra money in the bank, according to a report from Intuit.

In fact, today’s personal savings rate for Americans appears to reflect a softening trend in savings.

According to the U.S. Bureau of Economic Analysis, Americans will save less in 2023. personal savings rate The proportion of disposable income set aside for savings was significantly lower at 3.9% in August, compared to an average of 8.51% over the past 10 years. data From “Trade Economics” dating back to 1959.

Ryan Victorin, vice president of financial consultants at financial services firm Fidelity Investments, said part of the reason for the drop in personal savings is a reaction from the coronavirus pandemic.

as He told CNBC that while Americans spent significantly less during the pandemic over the past few years, more people are likely to spend more now to make up for lost time. .

Additionally, inflation makes it difficult for people to cover their expenses and save, Koehler said.

The decline in personal savings rates also reflects the changing financial goals of today’s workers.

As young people join the workforce, they are bringing new financial priorities with them, “the traditional “busyness” of saving every penny and using some of their extra income to support their current lifestyle.” There is a growing trend towards a balance between using it for fun,” Victorin said.

For most workers, retirement is the grand finale. But a growing number of people are worried that they won’t be able to retire at all.

According to a BlackRock report, in 2023, 53% of employees believe they are on track to retire along with the lifestyle they desire. Lack of retirement benefits, concerns about market volatility, and high inflation are cited as reasons for workers’ lack of confidence in retirement.

Younger workers share the same sentiment, with two out of three Gen Zers unsure if they will have enough money to retire.

However, for the younger generation, this fear may not be so worrying. That’s because most people actually want to retire early, or even retire at all, Intuit’s report found.

Additionally, the Transamerica Retirement Research Center found that: almost half of the working population Do not plan to work or retire after age 65.

Traditionally, retirement means leaving the workforce permanently. But experts have found that the very definition of retirement has also changed between generations.

Approximately 41% of Gen Z and 44% of Millennials, or those currently in between. 27 and 42-year-olds – significantly more likely to want to do some form of paid work during this period retirement.

This is higher than the 31% of Gen Shown.

This growing trend toward lifelong incomes could perhaps make the act of “retirement” obsolete.

Young workers are not planning to stop working, but they are still trying to save more for retirement.

Fidelity Q2 Retirement analysis reveals that Millennials and Gen Z remain the primary beneficiaries of 401(k) savings plans. retirement savings plan Offered by American employers, there are tax benefits for savers.

According to the report, in the second quarter of last year, Average 401(k) balance Generation Z and Millennials saw double-digit increases. Gen Z saw a 66% increase and Millennials saw a 24.5% increase.

Still, one question remains. As people spend more and save less, where do they direct their money?

Intuit research shows that Millennials and Gen Z are more willing to spend money on hobbies and make non-essential purchases than Gen X and Boomers.

Approximately 47% of Millennials and 40% of Gen Z expressed needing money to pursue their passions and hobbies, compared to just 32% of Gen X and 20% of Boomers .

Experts highlighted travel and entertainment as non-essential experiences prioritized by younger generations.

Andy Reid, Head of Investor Conduct, Investment Management Company According to Vanguard, Gen Z spending on entertainment increased from 3.3% in 2019 to 4.4% in 2022.

Additionally, Americans are “refocusing” on travel post-pandemic, which could be a reason for the decline in personal savings rates, Fidelity’s Victorin said.

Younger generations are saving less, but that doesn’t mean they’re living paycheck to paycheck.

In fact, “Gen Z appears to be living within their means, and their increased spending likely reflects the rising cost of necessities rather than a growing preference for luxury,” Reid said. It pointed out.

“It’s great to spend money on things that make you truly happy… [but] “People need to meet short-term needs and achieve long-term goals before spending money freely,” he added.