The future of finance is being shaped by a generation that has never known a world without smartphones or high-speed internet. For Generation Z, digital tools aren't just a convenience - they're a way of life. And nowhere is this more evident than in their approach to money management.
I recently had the chance to attend Money 20/20 Asia in Bangkok, where one of the hottest topics of discussion was the banking of Gen Z. It got me thinking about how dramatically the relationship with money has changed for younger generations and what this means for those of us in the industry building the future.
Millennials may have been the last cohort to regularly visit ATMs and bank branches. For Gen Z, money is largely intangible - just numbers on a screen. This digital-first approach brings both opportunities and risks.
There's no question that Gen Z is embracing technology in finance at a breakneck pace. Influenced by social media and the fear of missing out (FOMO), Gen Z is investing at a younger age and at higher rates than previous generations. This generation is 1.8 times more likely to start investing because of social media, driven by novelty, community, and the potential for financial gain.
This digital immersion is enabling some surprisingly positive habits. A remarkable 70% of Gen Z are already saving for retirement, starting at a median age of 19. That's over a decade earlier than Gen X, who typically started at 30. By automating savings and investing through apps, Gen Z is poised to benefit enormously from compound growth. Automation is a key factor in this shift, as it makes it easier than ever for young people to consistently put money aside without having to think about it. In fact, if a 20-year-old invests just $200 a month at a 7% annual return, they could retire with over $500,000 (assuming they retire at 60). This kind of automated, long-term wealth building was much harder to achieve before the rise of digital finance tools.
In India, startups like Rural Invest are leveraging mobile apps to help young people in villages invest in mutual funds via SIPs - and the startup's impact is already being felt. For many rural households, this is the first taste of the wealth-building potential of financial markets.
Rural Invest's approach is emblematic of the broader trend: the use of a digital-only strategy to leapfrog traditional barriers to financial inclusion. And for GenZ, by automating savings and investing, they’re poised to benefit enormously from compound growth.
However, this digital immersion and automation can also lead to some unhealthy behaviours. E-commerce giants deploy gamification tactics like flash sales and one-click Credit Card sign-ups to drive impulse purchases.
A staggering 41% of Generation Z consumers are impulse buyers, followed by Millennials at 34%. The instant gratification of in-app spending can undermine budgeting discipline.
Gen Z lives are lived on social media
In an effort to gain control over their financial futures, Gen Z is turning to social media as a platform for crowdsourcing financial advice and sharing money tips with their peers. This democratization of personal finance information is making Gen Z the most "financially included" generation, as they have access to a wealth of knowledge and perspectives that were previously gate-kept by traditional financial institutions.
However, social media is also rife with misinformation and questionable financial advice, which can be detrimental to Gen Z's financial literacy if not consumed with a critical eye. Nearly half of young people learn the basics of investing, and about a third dive into more advanced financial strategies through social media.
However, the blending of fact and fiction on these platforms can be concerning. For instance, one influential social media personality, with a following of over 60 million, connects cryptocurrency trends with planetary alignments. While astrology-based investment isn't a new concept, social media now amplifies such voices to millions.
What does it take to speak to Gen Z?
The cliche assumptions are that Gen Z has low brand loyalty, requires 100% automation and dislikes interacting with humans. The data tells a slightly different story.
Surprisingly, Gen Z in both the US and UK is showing a strong preference for legacy banks over digital-only challengers. In the US, 23% of Gen Z banks with Wells Fargo, while only 4% have accounts with challengers like Chime. Moreover, 81% of American Gen Z value face-to-face support at physical branches. Similarly, in the UK, traditional banks Lloyds, Barclays, and NatWest rank among Gen Z's most loved financial brands, with 70% trusting banks far more than influencers.
Gen Z is facing unique financial challenges and opportunities in an increasingly digital world. With over 50% of Gen Zers worried about their financial stability and 1.4 times more likely to say "Money stresses me out" compared to older generations, this generation's financial anxiety stems from witnessing their parents struggle through financial crises and recessions.
It is thought that as Gen Z faces an uncertain future, they prioritise the stability and reliability of established institutions. To effectively engage with Gen Z, financial brands must tailor their products to their unique needs and digital-first preferences while prioritising trust-building and offering stability.
However, legacy banks often struggle to meet the expectations of digital-native customers like Gen Z due to their outdated IT infrastructure. These systems built decades ago, can be inflexible, slow, and unable to integrate with modern fintech solutions. This technological debt hinders legacy banks' ability to innovate and adapt to the needs of Gen Z. A recent incident in India saw the Reserve Bank of India (RBI) question the resilience of a leading bank's IT infrastructure, despite the bank's reputation for being digitally savvy. This highlights the urgent need for legacy banks to upgrade their systems if they hope to retain Gen Z customers in the long run.
This raises an intriguing question: Could it be that the anti-incumbency sentiment that drove previous generations away from legacy banks has come full circle? Gen Z's preference for traditional banks suggests that they value the stability and reliability of established institutions. However, if legacy banks want to maintain this loyalty and buck the trend of anti-incumbency, they will need to invest significantly in modernising their IT infrastructure. This will enable them to provide the agility and innovation that Gen Z expects, while still leveraging their core strengths of trust and stability. By striking this balance, legacy banks could secure a loyal customer base for years to come.
Financial Literacy is crucial
The fintech community has a crucial role to play in promoting financial literacy among Gen Z (apart from helping banks fix their tech). By integrating financial education into the digital platforms where Gen Z spends their time, such as gamified budgeting tools, in-app investing tutorials, and AI-powered coaching, complex concepts can become engaging and actionable. Fintechs should partner with educators to develop age-appropriate, culturally relevant curricula, while regulators must ensure guardrails to protect novice investors. The goal shouldn't be to eliminate automation but to empower Gen Z to use it intentionally.
I’d love to know what you think! Is GenZ brand-loyal? Is it more money-anxious than other generations? When it comes to spending, does GenZ have a self-regulation problem or is the sheer convenience and allure of modern spending options too hard to resist?
P.S. There's a goldmine in the booming Creator Economy (50 million creators globally!), but a lack of dedicated banking solutions exists. Whoever figures out how to serve these creators will be sitting pretty in a $500 billion industry by 2027. (I’ll save this for another edition of Future Finance)
