Gen Z does everything differently from past generations, and investing makes no exception.
Generational gaps are a story as old as time. There’s always been and always will be some degree of discord between people from different age groups, often leading to endless debates, tension, misunderstandings, and conflicts. These discrepancies are evident in all areas of life, from fashion to communication styles, workplace attitudes, and social and political values, and are also quite clearly reflected in financial behaviors and investing habits.
When it comes to Gen Z, the demographic cohort born between 1997 and 2012, preceded by Millennials and followed by Generation Alpha, one can’t help but notice how differently they approach investing compared to past generations. According to recent studies, Gen Z might be the most investment-savvy generation yet, and while not everyone in this demographic bracket might share the same beliefs and motivations, Gen Zers’ relationship with money and the way many of them choose to spend and invest is shaping some very interesting trends in the financial space.
Early birds
Probably one of the most interesting facts about Gen Z is that they tend to start their investment journey much earlier than their older counterparts. The 2024 Global Retail Investor Outlook reveals that Gen Zers typically start investing in early adulthood, and more than half of them start learning about investing long before they enter the workforce.
Data from the Oliver Wyman Forum Global Consumer Sentiment Survey shows that 45% of Gen Zers already hold some form of investment, and they are five times more likely than Boomers to begin investing by the age of 21.
This trend is also confirmed by a 2022 survey conducted by the FINRA Investor Education Foundation and CFA Institute. According to the study, the average age for Gen Zers to enter the financial world is 19, which is considerably earlier than Millennials and Gen X, who started investing around the ages of 25, respectively 32.
The ubiquity of smart devices and digital apps is partly responsible for this early start. Nowadays, anyone can begin investing small amounts of money directly from their mobile phones, and it seems like Gen Zers, who know their way around gadgets and apps, are taking full advantage of the convenience that modern technologies provide.
Social media for learning
Another defining trait for Gen Zers is their high level of financial engagement. They are generally more knowledgeable than other categories in areas such as digital investing, which is to be expected considering they are the first generation of digital natives. Widespread access to the internet and the wealth of educational resources it holds, which previous generations didn’t benefit from, allows Gen Zers to learn about investing and finances and build a strong theoretical foundation before they jump into action.
They tend to get their information and financial advice predominantly from social media platforms, where they spend a considerable amount of time. And they are quite thorough in their research as well, with 30% of spending at least a day assessing an investment before moving forward.
While Millennials and Gen X favor financial companies and professionals, Gen Z investors are much more likely to turn to influencers, financial apps, and other online sources, such as Smart Investors Daily, for insights, studies, and tools that can help them stay up to date with the latest trends in the financial space and make more informed decisions. Having so much information at their fingertips also makes them feel more empowered and confident in their investing abilities.
A penchant for alternative assets
Portfolio diversification is a sensible investment strategy that can help one lower overall risk and potentially maximize profits. Gen Z is well aware of this cardinal rule but applies it differently than previous generations.
Unlike Gen X and Boomers, who prefer to stick to traditional assets like established stocks, mutual funds, and bonds when diversifying their portfolios, Gen Z is more daring and chooses to invest in more complex products and alternative assets, such as digital currencies and non-fungible tokens (NFTs), which are inherently riskier.
In the US, for example, crypto is the preferred asset class for 55% of Gen Z investors, followed by individual stocks (41%), and mutual funds (35%). Moreover, crypto is the first choice for 44% of Gen Zers who see volatility not as a risk, but as an opportunity to earn outsized gains.
Starting small and dreaming big
Although most Gen Z investors have a higher risk appetite than Millennials or Gen X and aren’t afraid to put their money into alternative assets, that doesn’t mean they are reckless. In fact, they are quite careful with how they allocate their money and choose to manage risk by investing smaller amounts via investing apps. This gives them the opportunity to test the waters, put their money to work, and fast-track their path to financial independence even without significant starting capital.
A lack of trust in institutions
When it comes to the factors that influence Gen Zers’ investment habits, there are multiple forces at play, including digital access, social media influence, and the significant financial hardships they face, but one factor that seems to stand out is a general lack of trust in financial institutions and traditional systems at large.
Trust in employers, the government, and other traditional organizations has fallen in recent years, pushing younger investors to adapt and search for new solutions and strategies that could help them achieve their financial goals. That’s the reason why they tend to resort less frequently to financial professionals and seek guidance from AI advisors and digital tools instead.
There’s no doubt that Gen Zers have a very unique approach to investing, and their reliance on technology, social media, and complex investment products has the potential to reshape the financial landscape in the years to come.
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