What do Gen Z consumers want from financial institutions?

There’s a saying that if you want to understand someone’s worldview, take a look at the way the world was when they entered their 20s. For gen Z, many of whom are now just doing that, they are entering a world which is  evolving by the minute: pandemics, digital transformation, recessions, inflation and intermittent threats of war, few generations have hit adulthood at a more complicated time. If we’re all products of the world which made us, what is this one going to do to gen Z?

According to data, generation Z will become the largest generation among all consumers. Already they account for 26% of the world’s population, which equates to two billion people. Their impact on global markets is going to grow making them the most influential generation from the market’s point of view since the baby boomers.

They will also have more influence on markets than any generation since the baby boomers.

What’s more this is a generation which is likely to have considerable buying power. While Millennials and generation Z are moving into a more challenging world than their parents and grandparents, they still stand to have immense buying power.

Although Millennials have much less wealth than their parents at this stage of their lives, they stand to inherit more than  baby boomers and early gen X parents by 2030. This could make them the wealthiest generation in US history.

Generation Z is not far behind. By 2030, their projected income is projected to hit $33bn – more than a quarter of all global income. The year after that they are projected to surpass the buying power of millennials.

As the oldest of them start making their way up the career ladder, businesses and financial institutions (FIs) across the globe have to ask themselves what this generation wants?

First, let’s work out who we’re talking about here. Generation Z are people born between 1996 and 2012. They spent their childhood years sandwiched between the great recession and the pandemic and are coming into the workplace as the world struggles to recover from the greatest downturn in modern history. With the apocalyptic spectre of climate change hurtling towards them at ever increasing speed, you can forgive them for feeling a bit jumpy.

Financially speaking, things are unsettled. They are coming into a world in which the cost of living is rising, saving money is difficult, rents are going up and buying a house is slowly moving out of reach for many.

This, then, is a generation which has a very different outlook than those which have gone before them.

They are the first generation to grow up in a world dominated by highly sophisticated digital technology. They are the first in which smartphones and mobile devices have been common and in which ecommerce has been the go-to form of interaction with business.

For the first time, they are also coming to grips with a world in which climate change is more than a far off threat — it's in the here and now, with its effects playing out every day on the news.

All these factors are integral in shaping the type of consumer they are. They are digitally savvy and are more likely than older generations to embrace new and upcoming business models. They are cautious about money and concerned about environmental and social views. They plan to have a positive impact on the world around them and are more likely to support companies which support their world view.

Most of all, though, they are a generation having to cope with that incredibly uncertain world us older people have made for them, and this starts with their experience of COVID-19.

Related: Generation Z characteristics: What businesses should know about the next wave of consumers

There is a misguided tendency to overlook how young people have been affected by COVID-19. They are, after all, in the lowest risk categories for the disease. For most of them who contract the virus, their robust immune systems will see the disease as little more than an inconvenience.

In reality, the impact of the pandemic has been profound — indeed it could be more severe than any other generation. It has come at a critical time in their lives. Those at work have not been able to build up the savings to survive turbulence and those in school have seen their education decimated just as they are getting ready for college or university.

The stats tell the same story. According to a Bankrate survey, young adults were hardest hit during the pandemic. 46% of generation Z say they currently have fewer emergency savings than they did before the pandemic.

They are more likely to have lost their jobs or found themselves in long term unemployment. Gen Z is more likely to work in jobs in the service industries and other sectors which have been hard hit by the pandemic. They were also in some of the lower paid positions which were first in the firing line when businesses started laying people off.

At a time when the oldest of them will want to be trying to build up their savings, they are being hit with record inflation and surging grocery prices. The cost of living is on the rise, spurred by rising gas prices. House prices and rents are shooting up around the globe. In some places, the cost of rentals in the US has risen by nearly 30% in one year aloneIn New Zealand the cost of living is on the rise as inflation hits an all time high. The UK is experiencing its highest levels of inflation for 30 years as rates hit 5.5. What’s more things are likely to get worse, especially with the ongoing crisis in Ukraine. As a generation of renters, it is the young adults who are being hardest hit. In the UK for example, rents are rising at their fastest rates for five years. Rising property prices mean the bar to buy a house is rising all the time, while the growing pressure on their day-to-day budgets makes it even more difficult to save.

Those experiences influence the way they look at money and the way they look to the future. They are tech driven and working against a background of uncertainty. This means they behave in a very different way to older generations.

Related: Designing for the 21st Century Consumer

One of the more surprising features of generation Z is that they are bucking recent trends which saw younger people turn away from pensions. Indeed, according to a 2021 survey from TransAmerica, they are starting to save much earlier than their parents and grandparents. This could be partly because of the awareness of falling returns from pensions prompting people to start saving early and the rise of defined pension plans which allow employees to put aside a chunk of their monthly paycheck to pay towards pensions.

The long-held notion — albeit one mostly held by older people — of the young being frivolous with money, does not seem to be holding water. Indeed according to data from Accenture, 68% of those in the generation Z bracket are more financially responsible than older generations. More than a third have more than $1,000 in savings and they are the least likely generation to be in debt.

They have seen the struggles of previous generations and are keen to gain as much financial education as possible to prepare them for what life is going to throw at them. They are avid consumers of financial literacy applications and are keen to engage with digital apps which help them to manage their finances.

As products of the digital age, they are naturally more comfortable with digital products. It should come as no surprise, then, that generation Z is the biggest adopter of fintech services. This can be a problem for traditional banks who have previously relied on their long-established positions of trust and consumers’ natural distrust of digital-only financial institutions to hold onto their core customers. None of that applies to the young generation which means banks will have to work harder to offer digital first options to attract their interest.

Thanks to digital technology, generation Z is also becoming a generation of adventurous investors. Online trading platforms such as eToro make it easier than ever to get started with trading. Young people are embracing opportunities such as cryptocurrencies as a way to make their money work for them. They are not afraid to engage in more high-risk investing structures, something which is likely driven by the poor performance of traditional savings opportunities.

FIs can cater to their needs by meeting them on their own terms. Young adults are much more open than previous generations  perhaps due to the proliferation of social media  and are showing signs of adopting the principles of open banking which makes it possible to share financial information across multiple organizations allowing for a more connected financial experience.

Collaboration is the name of the game and FIs are increasingly partnering up with fintechs and big tech companies to give people the connected financial experiences they are craving.

Even so, human contact is still important. According to a study from Cornerstone, around half of generation Z and Millennials say it is important to be able to arrange an appointment with their bank’s branch through their mobile apps. More than six in ten think it's important that a mobile banking app seamlessly reach the contact center.

While much of the financial sector’s digital strategy focuses on minimising the need for human contact, processes will need to be designed which can seamlessly integrate human assistance when customers want it.

Automation will become the name of the game to enhancing the consumer journey. The self-service channel instils choice and flexibility, but it also allows the high-skilled bankers on premise to do what they do best: forge relationships, advise and upsell. FIs should leverage new branch formats and automation to blend the physical and the digital to meet Gen Z where they are and want to be.

Generation Z wants more personalized financial products which cater to their desire for authentic and educational experiences. People want to learn and discover new options for managing their finances. Customers are thinking about their needs rather than about products which means FIs need to become facilitators which provide financial support rather than just holding money.

In providing this journey personalization, big data will become more important. Like all businesses, FIs are capturing more data about their customers than ever before. This can help them identify trends, but also give people more individually tailored financial solutions. By using data such as credit profiles, account information and transaction histories, they can design products and services shaped around each person.

Related: Top banking trends to watch in 2022

Big data is already having a significant impact in the world of loans. While lending decisions were traditionally shaped by very basic pieces of information — such as a credit score — financial institutions are learning how to harness multiple data sets to provide a more nuanced and accurate vision of a person’s credit worthiness. This is making it possible for them to provide more services to people who might previously have felt excluded from financial products such as young people who might not yet have built up much of a credit history.

It's also worth thinking about the impact the last couple of years have had on this generation’s mental health. They are becoming known as the lockdown generation. Just at the point many have been entering transformative periods in their lives, in which they will have some of the first life experiences which will shape their development, they have been hit with unprecedented restrictions which have affected their economic and social development.

What impact this will have is hard to say at the moment, but it is possible that they will need more guidance and advice than might be normal for people of their age. Products which integrate education and personalisation to deliver experiences which are more tailored to their own experiences.