Generation Z may be unique in having grown up with smartphones, but their financial priorities, and those of their older Millennial counterparts, aren’t much different from those of previous generations, according to findings from a recent Morgan Stanley Research AlphaWise Survey.
The U.S. Census Bureau estimates Generation Z (born 1997 to 2008), and Millennials (born 1981 to 1996) total around 127 million people, or 40% of the U.S. population. That’s a sizable percentage that is expected to hold steady through the rest of the decade, and the impact of these generations is amplified because people in their mid-teens through mid-40s are critical contributors to the economy and the labor force.
What’s more, these two cohorts have been seeing a steady increase in net worth since 2019, with the older Millennials (born roughly 1981 to 1989) experiencing the biggest boost over this period. These households have the second-highest post-tax incomes and spending among all age groups. Overall, nearly half of Gens Z and Y said they expect to receive inheritances, which they plan to spend buying a home, traveling or funding retirement.
All of these factors make the priorities, goals and spending ethos of these two cohorts of critical interest to companies across sectors.
“Our survey results reflect a group that is generally upbeat about their financial outlook, and some have become more so than they were before the pandemic: More than half of 22- to 34-year-olds said they are very optimistic about their personal financial futures, up from 38% in 2018,” says Morgan Stanley analyst James Faucette. “Overall, these younger consumers prioritize family, home ownership, education and their financial situation. Despite their embrace of all things tech, they still use traditional credit cards and favor traditional banks.”
Analysts highlighted several key findings from the survey of more than 4,000 younger U.S. consumers.
Nesting Up
Millennials’ and Gen Z’s general optimism about homeownership, higher education, employment and their financial future is likely to buoy consumer-dependent real estate sectors such as residential, retail and lodging, analysts believe.
Despite high mortgage rates, Millennials and Gen Z continue to aspire to live in homes that they or someone in their household owns. More than two-thirds of Gen Z live in such homes, and if their expectations are accurate, that share would rise to more than three-quarters over the next five to 10 years. However, the number of people in this age group that actually own their homes has risen by only 2% since 2018.
At the same time, these home-ownership aspirations are not expected to have a major effect on the home rental market. Mortgage rates and rising home prices have kept renting relatively affordable compared with owning, meaning fewer tenants are leaving to buy a home.
The continued prioritization of a college education by Millennials and Gen Z could boost the student housing sector and properties close to large colleges with growing enrollment stand to benefit.
While Millennials and Gens Z are in better financial shape than they were before the pandemic, they are also less mobile; some of this may be attributed to the “lock-in” effect of low mortgages. This could dampen demand for self-storage, but a stronger employment outlook could help counter this.
Going Places
Optimism about their finances has meant younger generations place travel high on their priority list. Indeed, travel is more important than buying a home for Gen Z and as important for Millennials, according to the survey. This should give airlines a lift, along with an increase in the use of their cobranded credit cards. One U.S. airline has seen a 60% rise in such card spending compared with 2019.
The majority are aiming for permanent full-time jobs, and their preference for four-year college degrees and professions that require higher education has resulted in a shrinking available job pool for trucking companies. Around a quarter of Gen Z and a fifth of Millennials said they do not plan to get a four-year degree, down from 31% and 29%, respectively, of participants in the 2018 survey. A growing preference for construction as a career means trucking companies are competing for the same talent, adding another factor to a driver shortfall that has already fueled wage inflation that could push costs for carriers, shippers and consumers higher.
Financial Flex
According to the survey, young consumers are using traditional credit cards more than before, prefer national banks over their online-only competitors and appear less willing to use financial technology (fintech) such as electronic point-of-sale systems and other alternative payment methods than they were in the earlier survey. Also, Milliennials and Gen Z are mainly looking for auto and home loans, which fintechs don’t currently offer.
“This runs counter to perceptions that younger generations are credit averse and reluctant to use large financial institutions,” says Faucette. “It could mean that online and fintech firms will have to adapt or risk missing out on a large demographic opportunity.”
Millennials and Gen Z reported a higher propensity to save each month relative to older generations, which could boost their discretionary spending and reduce loan delinquencies. Additionally, they and are expected to drive faster growth in loans and are using credit cards more than in 2018.
While these younger generations are more inclined to bank online, about 75% still like to have access to physical locations, benefiting large national banks with extensive branch networks, or those with hybrid models that offer online and in-person banking.
