Generation Z: investing for financial security and social justice
America’s Generation Z, born after 1995, now makes up 20% of the population and a rapidly growing share of the workforce. These young people are graduating from school and into adulthood with $115.5 billion in student debt and a cost of living that exceeds wages in many areas, following a pandemic that has highlights economic insecurities.
But many Gen Zers are determined to establish financial stability — and they’re doing it on their own terms, with a strong commitment to social justice. This dual focus on financial security and a mission to change the world may be, in part, the logical outcome of current uncertainties – whether Social Security benefits will endure or whether lean era projections for stock market returns will will realize.
Why we wrote this
As Millennials play financial catch-up, the new generation of young workers also faces economic instability. Here’s how Gen Z is disrupting traditional paths to safety and forging new paths to justice.
In the San Francisco Bay Area, a youth group is developing a bill of youth economic rights to create a 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.
“They just need a seat at the table,” says Margaret Libby, CEO of MyPath, “so they can participate in defining the needs – and the right solutions.”
Lian Zhang is only 22 years old, but she is already nervous about being able to afford a house or the college education of her future children.
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 low-income communities or marginalized groups,” says Ms. Zhang, who works as an admissions counselor at an online university and earns $43,000 a year. But she also hopes to support her own family, including buying a house for her mother. She fears that a middle-class salary is not enough. “Maybe it’s better if I make more money now and retire earlier or save up so I can donate or help this group later when I’m better off.”
Why we wrote this
As Millennials play financial catch-up, the new generation of young workers is also facing economic instability. Here’s how Gen Z is disrupting traditional paths to safety and forging new paths to justice.
Ms. Zhang is part of Generation Z. These young Americans, born after 1995 and nicknamed “Zoomers” during the pandemic, now represent 20% of the population and a rapidly growing share of the working population. They are the most racially diverse generation to date and are generally known for their viral TikToks and hypersensitivity to social causes.
This generation is reaching adulthood with no shortage of tough financial decisions and challenges on their plate. Having watched the Great Recession as children and now being young adults in the pandemic, Gen Z understands financial stress. Many entered the workforce at a time of layoffs, pay cuts and dying jobs, and many have experienced poverty. Yet, amid financial insecurity, this generation is responding with a mix of dogged pragmatism and untraditional efforts to make economic opportunity more inclusive.
“What [young] people say, “Hey, this pandemic almost killed me”. So I really want to 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 that means you have to change the settings, the environment you are in.
Stock market strategies
The labor market is recovering from the peak of the pandemic a year ago – employers added 850,000 jobs in June alone. But the roots of financial anxiety in young adults may have germinated long before the pandemic.
Gen Zers have seen the generation before them, Millennials, struggle to pay off student debt, often delaying homeownership. Generation Z already owns $115.5 billion student debt, and the cost of living continues to exceed wages in many urban areas. In 2020, around 30% of Gen Zers already had credit card debt. Unsurprisingly, money is a “significant source of stress” for 81% of Gen Z survey respondents aged 18-21, according to a study conducted by the American Psychological Association.
Rising costs for housing, healthcare, education and childcare have forced these young people to seek high-paying jobs in finance, business and technology.
“What we’ve noticed is that Gen Z seems to take a much more functional and rational approach to their money overall, even being younger,” says Kelly Lannan, vice president of young investors at Fidelity. . “A lot of people within Gen Z actually want to learn from the generation before them,” she says. “They are a bit more risk averse.”
The COVID-19 pandemic has only reinforced these patterns. According to a March 2020 Pew Research survey, half of the oldest members of Gen Z said they or another household member lost their job or took a pay cut at the start of the pandemic. This happened when poverty rates were already higher for adults aged 18 to 24 – around 1 in 5 young adults – than for most other age groups, as people leave home their parents, earn low wages and are less eligible for public benefits.
For a growing number of young Americans, investing early is a way to ease financial anxiety.
“[Investing] definitely looks 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. “It inspired me to create a personal legacy and take it upon myself.”
User-friendly apps like Robinhood are making it easier for Gen Zers to try their hand at investing, and young people are turning to YouTube and Reddit to learn about financial strategies. A investigation found that 22% of Gen Zers started investing before they turned 18, compared to just 8% of millennials. And the decentralized appeal of cryptocurrency and the GameStop saga earlier this year brought even more young investors into the fold.
Social Impact Investing
For many Gen Zers, investing is more than just a way to ensure financial stability. Beyond profit alone, young adults invest with specific values in mind: inclusion and social impact.
“When they have some freedom and disposable income to decide where to spend their money, it will be in a way that doesn’t always maximize material return,” says Josh Packard, executive director of the Springtide Research Institute. Instead, he says, they’ll 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 in fact be proof of this generation’s eagerness to seek innovative solutions to the problems they face, such as distrust of financial institutions. By trusting a decentralized cryptocurrency community, young adults have created an entire financial system that isn’t dependent on the whims of big banks, says Dr. Packard.
“We don’t necessarily invest like my parents did for the biggest return so they can be financially comfortable,” says Vivek Pandit, a 23-year-old who works at a startup in Philadelphia that helps companies to recruit underrepresented talent.
“It’s a priority for us, but we invest with a mission. When we used Robinhood it was to support GameStop and weed out hedge funds. When we invest in crypto, it’s to prove that this whole decentralized idea of money can actually work.
This dual focus on financial security and a mission to change the world may be, in part, the logical outcome of current uncertainties – whether Social Security benefits will continue or whether projection of a coming lean era for stock market returns will come true.
For many young people, social impact investing – not just profit – is the future of the financial system. This shift isn’t happening just because it’s the “moral” thing to do, Pandit says, but because social impact is the only business strategy that makes sense.
“Gen 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 accommodate us, and we’re not going to buy from them,” he says, referring to the companies’ commitments to diversity and the environment.
In addition to investing and consuming more consciously, some Gen Zers are organizing to demand new rules of the economic game.
In the San Francisco Bay Area, a group of young people from underprivileged backgrounds are developing a charter of economic rights for young people to build a fairer and 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. “As a country, we haven’t really thought about as much as we could have invested 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 job market, navigate the banks, and build wealth out of thin air – often with salaries that barely cover the bills. Even so, they don’t just focus on themselves.
The Youth Bill of Economic Rights includes access to banking services, quality financial education, financial coaches, affordable higher education, guaranteed income and the right to participate in policy making.
“They just need a seat at the table,” Ms. Libby explains, “so they can participate in defining the needs – and the right solutions.”