Picture of Christopher A. Hopkins, CFA

Christopher A. Hopkins, CFA

“Soft saving” trend imperils Gen Z retirement

From the folks that brought you quiet quitting comes a new and troubling TikTok trend: soft saving. The term refers to a growing attitude shift among younger adults that prioritizes personal experiences and living in the moment over foregoing current consumption to save for retirement, and it spells trouble, especially for members of Generation Z.

The term soft saving derives from a broader social media theme known as “soft life”, the pursuit of comfort and relaxation with minimal stress and responsibilities. The moniker gained currency in the aftermath of the pandemic, especially among younger Millennials and members of Gen Z (born 1997 through 2012), many of whom are rejecting the “hustle culture” of working hard and sacrificing today to save and invest for an unknown future. Soft saving then is the shift in financial priorities away from longer-term goals to more immediate and temporally satisfying spending on experiences and luxuries in the present.

It is important not to paint all of Gen Z with too wide a brush, and a significant share of younger workers are focused on responsible budgeting and investing for the future. But an alarmingly high percentage are eschewing delayed gratification compared with previous age cohorts.

A 2023 survey by the software company Intuit raises several alarms. The survey, dubbed the 2023 Prosperity Index Study, polled 3,500 adults in the US and Canada including a robust sampling of 18- to 26-year-olds who comprise working age Gen Z. A seminal finding among this demographic was a notable retreat from the so-called FIRE or “financial independence, retire early” movement that emphasized aggressive earning and saving to facilitate retirement at a much earlier age, perhaps 45 or even younger. Soft saving, according to Intuit, is Gen Z’s backlash against FIRE culture leading more younger adults not to specifically target early retirement or even plan for retirement at all. Instead, their emphasis is placed upon personal growth and mental wellbeing day to day.

This differential in perspective reflects other results from the survey in terms of priorities. For example, only 52% of Gen Z said that saving for retirement was necessary for them to feel financially secure, compared with 62% of Gen X. More to the point, the younger respondents placed a much higher priority on quality-of-life factors like work-life balance and ability to pursue hobbies and passions than on either physical or financial health. To drive home the point, nearly 3 in 4 Gen Z members say they deliberately place a better quality of life above having extra money in the bank and 2/3 say they are only interested in their finances as a means of supporting their other current interests. Six in 10 said their top financial goal is to have enough money to travel or take a vacation.

As one might suspect, social media is one key to understanding why many of these young adults feel compelled to live in the moment. The Intuit study supports the voluminous body of evidence suggesting that TikTok and other social channels can contribute to feelings of inadequacy and heighten anxiety.  Among Gen Z adults surveyed, 2/3 said they feel less prosperous when they compare themselves to popular social media influencers, while 3 in 4 believe they are falling behind in their own goals by comparison with the personalities whom they perceive to be effortlessly and conspicuously succeeding.

These behavioral factors among younger workers are particularly important in an age where many derive not only their cultural identity but their financial advice from social media influencers whose guidance can be, shall we say, suboptimal. Gen Z investors are also more willing to take financial risks than previous cohorts but acknowledge they are less confident in their ability to manage money. Roughly half admit to buying cryptocurrency even though they do not understand it, and a majority acknowledge lacking basic financial capability including how to get started investing.

This is especially alarming at a time when investment education has never been more readily available, and a growing number of states are mandating a course in basic financial literacy.

The soft saving trend becomes even more concerning when considering the bigger picture. A 2023 survey by Northwestern Mutual found that Gen Z expects to be able to retire at age 60 on average, a full 5 years earlier than the general population. They also anticipate longer lives, with 40% expecting to make it to age 100. That means 40 years in retirement, equal to the number of working years. Yet they significantly underestimate the size of the nest egg they must amass over their working lives to accomplish this feat, even though they anticipate little help from Social Security.

It is difficult to estimate to what degree the soft saving trend is merely a variant on the same tendency to delay saving that confronts every generation, amplified by the ubiquitous but evanescent voices of social media personalities. The fact that three quarters of Gen Z are reluctant to set long-term financial goals due to the current economic climate is exactly the reason they should strive to do so. It is also true that this generation is blessed with more information and better tools to build wealth in anticipation of their retirement, whatever that may look like. And importantly, they have one precious and irreplaceable asset at their disposal: time. Saving doesn’t have to be hard, but it can’t be too soft.

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