Generation Z grew up with the Great Recession, and they’re entering adulthood on the back of a once-promising economy that has been upended by the pandemic. That deep experience with economic uncertainty will likely reinforce some spending habits that Generation Z inherited from millennials while creating new financial behaviors that businesses must master in the years ahead.
These young consumers demand fast, dependable technology tools and will pay a premium for personalized products and services. But businesses also have to ease Generation Z’s skepticism about data security and lead with a mission that goes beyond simply turning a profit to win their loyalties.
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Who is Generation Z?
Generation Z (Gen Z) is generally considered to start somewhere around 1995, with researchers at Morgan Stanley pegging their birth years from 1997–2012. That means the oldest members of the group are just entering early adulthood—and establishing earning and spending patterns that could follow them for decades—while many others are still learning their first lessons about spending, saving and finance from their families.
Morgan Stanley estimates that Gen Z will become America’s largest generation by 2034, growing to just under 80 million. The bank estimates that this “youth boom” could affect economic growth in ways not seen since the heyday of the Baby Boomers.
Although still young, Generation Z already has significant spending power at their fingertips. Consulting firm Barkley Inc. estimates that the young consumers may already represent annual direct spending of more than $140 billion in the U.S. and generate up to $127.5 billion in additional spending by other family members. That’s all before they reach their prime working years, a threshold that Morgan Stanley projects will start in 2022 and last until the late 2030s.
Gen Z will become America’s largest generation by 2034.
Beyond just being digital natives—the iPhone was already five years old when the youngest among them were born—members of Generation Z are power users of social media and peer-to-peer online services. Pew estimates that nearly all American teenagers have access to a smartphone and that 97 percent use one of seven large digital platforms. A Morgan Stanley survey found that 60 percent of Generation Z had actually used a smartphone before the age of 14. Experts say those experiences will have a powerful effect on shaping that generation’s expectations for marketing, shopping and saving.
Generation Z’s spending habits and overall values will also be influenced by their unique home and family lives. Surveys show they are likely to be more ethnically and culturally diverse and better educated than previous generations. But they’re also being shaped by economic uncertainty: this spring, half of the older members of Gen Z told Pew researchers that they or someone in their home had lost income or a job because of the COVID-19 pandemic, notably worse than other generations.
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How are Generation Z’s spending habits different from other generations?
While they inherit some characteristics from the millennial generation, Gen Z consumers are already developing the spending and saving habits that should stay with them through adulthood. That includes an expectation that payment technology, a digital-first approach and digital sales channels are fast and reliable.
Morgan Stanley research estimates that, in the decades ahead, millennials and Gen Zers will combine to represent a “tag team” of more than 150 million Americans, and the two groups already show some similarities. Morgan Stanley found that millennials and Generation Z both spend an outsized portion of their income on eating out, mobile devices, transportation and housing.
Generation Z spends an outsized portion of their income on eating out, mobile devices, transportation and housing.
E-commerce has infused Generation Z’s overall expectations for consumer spending, driving strong preferences for value, availability and choice in their shopping experiences, according to research from IBM and the National Retail Federation. But online shopping hasn’t eaten all of retail yet: the NRF/IBM survey also found that 98 percent of Generation Z consumers still shop in physical stores some or most of the time.
Generation Z is fully immersed in the ease of moving money around, with some experts estimating that three-quarters of the group use a money-transfer app such as Venmo or Zelle once a month. Younger consumers are able to access social media apps years before they can open an actual bank account, which means traditional financial institutions could face extra work in communicating their value beyond simply providing payment infrastructure. There’s a lot at stake: Morgan Stanley estimates that Generation Z could represent about a third of U.S. consumer debt in the next 20 years.
Generation Z loves value but will pay for unique experiences
An uncertain economic outlook should only increase Generation Z’s preference for value when they’re shopping. Our friends at the NRF report that 65 percent of Generation Z tend to look for value when making a purchase decision, and more than half will change brands if they find quality lacking.
The Boston Consulting Group says Generation Z is also more likely than other generations to “trade down,” purchasing a lower-priced and lower-quality item in less-critical categories in order to prioritize spending somewhere else. And once the pandemic began to seriously disrupt the U.S. economy, BCG also found that 66 percent of Generation Z members surveyed were pessimistic about the pandemic’s effect on their financial bottom line—a higher rate than any other generation.
Generation Z will still spend money on luxury items.
Gen Zers are also happy to look to decentralized networks to make and spend money. A survey from e-commerce company Afterpay found that 72 percent of Generation Z want to start their own businesses, and many use online, peer-to-peer marketplaces to make up to $10,000 per year beyond their regular pay.
Although they like a good bargain, Generation Z will still spend money on luxury items. But they part ways with millennials on this score. Instead of seeking nameplate brands that show off their social status, Generation Z consumers are more likely to pay a premium for items that are unique and tailored to their interests, according to researchers at consulting firm McKinsey.
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What do Gen Z’s spending habits mean for businesses?
Because they’ve grown up with personalized, powerful tech, Generation Z expects to have a better idea of what’s going on under the hood of any business angling for their dollars. Tapping into Generation Z’s spending habits and building lasting relationships with these consumers means focusing on the company’s core values, communicating them clearly, and investing in technology that makes the shopping experience seamless and friction-free.
Experts say that Generation Z places a higher premium on the social values of a company trying to sell them something, reflecting a general belief that businesses should use their financial power to improve the world—90 percent of consumers from Generation Z say that companies have “a responsibility to address environmental and social issues,” according to McKinsey research.
While most members of Generation Z use their smartphones to communicate with friends and family, they’re not against bringing businesses into the conversation. According to the NRF, more than a third of Generation Zers would be interested in making digital content on behalf of a brand, while more than 40 percent are willing to participate in games or product review opportunities offered by businesses.
But Generation Z consumers have high expectations for the technology tools at their fingertips. The NRF also reports that about 60 percent of Generation Z consumers are simply unwilling to use apps and websites that load too slowly or make it too hard to find what they’re looking for.
More than a third of Generation Zers would be interested in making digital content on behalf of a brand.
Generation Z consumers are also wary of the ways their data can be used, but they’re willing to make the trade if the benefits are clear. The NRF survey found that fewer than a third of Generation Z consumers are interesting in giving businesses “health and wellness, location, personal life or payment information.” But more than 60 percent drop some of that reluctance if they feel better about data security.
Finally, businesses can’t forget to appeal to the parents and other influential adults in the lives of Generation Zers. After all, many of these consumers haven’t gone off to college or started their working lives yet. Eighty percent of parents with Generation Z kids surveyed by the NRF said they were more likely to shop at retailers that made it easy to involve children in the process. Some examples? Family wish-list functions on e-commerce sites, toy tests and tryouts and in-store experiences that pair merchandise with media from a kid’s favorite entertainment brands.
Invest in Gen Z now to reap the rewards
Generation Z consumers expect the upside of digital retail experiences, even if they’re shopping in-store—tons of options, unique items and great value—without the downsides, like invasive data collection practices or hard-to-manage, under-developed tech.
The shock of COVID-19 adds another layer to this generation’s commercial calculus, one that experts think could have long-lasting effects. But their commitment to value that goes beyond price points gives companies an opening: communicate core principles through the channels Generation Z already uses, and this surging group of consumers will pay attention.
How are you connecting to the generation that will spend $143 billion this year in the U.S. alone?
Gen Z, the portion of the U.S. population born around 1996 through roughly 2010, makes up for 40 percent of the number of U.S. consumers and by 2026, Generation Z will surpass millennials as the largest consumer base in the U.S. So, brands need to get to know them.
For starters, Gen Z consumers are the most ethnically diverse generation and they’re on track to be the most educated in U.S. history, but they aren’t terribly trusting—they can sense insincerity a mile away. They value things in brands that they also value in their daily lives like authenticity, transparency, being unique, giving back to society and collaborating. Smart brands, above all, should find ways to nurture their relationships with this powerful and discerning new generation of consumers.
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What they’ll be looking for when they wield their spending power
This is the generation that, largely, grew up not remembering the September 11, 2001 terrorist attacks —so they don’t know what the world was like before that; they’ve seen a lot of world conflict and may have a better understanding of suffering in the world than previous generations. So, count on them researching your business before they shop to figure out what you’re all about. But that’s just one of many characteristics that set these consumers apart.
They want you to show that you care—about the world.
Generation Z doesn’t want to be sold to—they want to be connected with and in a way that shows you support good in the world. A 2019 Porter Novelli/Cone study found “90 percent believe companies must act to help social and environmental issues,” and “75 percent will do research to see if a company is being honest when it takes a stand on issues.”
To them, value reflects more than what’s on a price tag. They’re more likely to purchase a product or service that’s backed by social accountability. According to a study by Ad Age, 33 percent “have stopped buying from a company that contributes to a cause with which they disagree.” This leads them to support brands like Everlane, Package Free Shop and Patagonia—all companies that put sustainability at the forefront of their product and marketing.
They shop social, sustainable and small.
Despite the fact that Gen Z has grown up on digital, that’s not their preferred way to shop, they like visiting your brick-and-mortar and they love to interact with brands in person. To Gen Z, brick-and-mortar businesses are not dead. Young consumers are known to shell out their cash for an experience rather than just a new product. As a money-conscious generation, experiences reach beyond expensive concerts and vacations. They want to enjoy experiences in everyday life.
According to a 2017 survey by Accenture, “77 percent of Gen Z respondents in the U.S. said that shopping at brick-and-mortar stores is their preferred channel.” In the same study, 46 percent of Gen Z consumers said they get their information in-store before making an online purchase. The data proves further that young shoppers want to spend time with brands in person, regardless of their penchant for favoring online interaction.
And, because they are socially minded, their support for small business is good news for brick-and-mortar owners—especially if you want to make a COVID-19 comeback. An April 2020 consumer survey showed 48 percent of respondents under 45 said they trust retailers with physical locations more since the beginning of quarantine. Gen Z consumers are loyal to brick-and-mortar businesses that are transparent about the safety measures they’re taking, like curbside pickup and taking contactless payments.
Gen Zers want to feel like they’re a part of a community that supports the causes they care about. For this reason, they love to shop small. Bigger brands can adapt to this mindset by “popping up,” giving their larger operation a smaller feel. Gen Z is also into supporting brands they can relate to. That’s why you’ll see more and more retailers—big and small—sharing stories through channels like blogging and via social media.
They support businesses that show authenticity.
According to CNBC, when it comes to Gen Z consumer sentiment, authenticity and relatability are key. Gen Z is on the hunt for the truth. They want relatability, all the way from the ads they see to the person behind the cash register. Not to mention, their hunger for authenticity compounds during times of social or political unrest. Gen Z consumers want to know the brands they support also support the causes they care about, and if they don’t, they have no problem taking their business elsewhere.
They use social media to research before they buy.
Social media permeates their buying habits. In the past year, 37 percent of Gen Zs “have increased their use of social media for purchase decision-making,” according to Accenture. Additionally, two out of three Gen Z shoppers want to make purchases directly through social media. Gen Zs tend to move through multiple touchpoints before making a purchase—doing online, social media and in-store research before taking the plunge. Some call it being picky—they call it being informed.
They love to eat out.
Restaurants can take advantage of Gen Z’s spending power before they even enter the workforce. Many of those belonging to Generation Z are still in college, and in that age group they spend most of their disposable income on food. In fact, almost 70 percent of them eat out once a week. By adopting the digital technologies they feel comfortable with, restaurants can get ahead on planning the capture of this worthwhile consumer base.
They want to foster financial wellness.
A study led by financial technology company Afterpay and The Future Laboratory proved Gen Z to be a financially proactive generation. They monitor their spending habits through apps and don’t use credit cards like previous generations do (although they way millennials credit cards also changed). According to the study, “94 percent of Afterpay’s Gen Z customers use their own money, linking their account to a debit card.” There’s a current responsible spending trend in business as well. When making a purchase decision at work, Gen Zs are more likely to consult online ratings—then discuss it with peers—rather than going through a sales rep. Because of this, financial institutions can better engage with Gen Z customers by adopting more digital solutions.
Remember, they’re now the most digitally advanced generation
The oldest of the Gen Zers were born only eight years before Facebook launched, so their profile pictures span from grade school until they found their first job. The first iPhone was released in 2007, so constant engagement with all the social media platforms is simply what they know. And, while they prefer to shop in your store, digital-first shouldn’t be overlooked.
That means you’ll want to:
- Kick up your brand’s visibility across every social media platform and do it in a way that allows for the most engagement (Pandora understood that concept, see how they upped their users engagement)
- Accept contactless payments (all the various types whether it’s Apple Pay, tap-to-pay cards or mobile payments from their banks like Zelle) Learn how Chipotle Europe stays relevant amongst younger demographics by offering a more modern mobile ordering solution to its customers.
- Have a website that is easy to use and is intuitive—anything that seems outdated isn’t going to go over well with this generation
- Give them as many ways possible to interact with you digitally—make emails and texting part of your regular marketing campaigns, they want to hear that ping
Emphasize your authenticity and truly connect with them
Generation Z is quickly becoming the most powerful consumer group in the world. If you haven’t started to bridge the gap between your millennial-driven strategies and those that appeal more to Gen Z, you’re at risk of lagging behind. Businesses who understand Gen Zers, what they value and how to interact with them will be the ones to win over their business. But the keys will also be nurturing relationships and being authentic, which for them is the new “transparent.”
