Marketing Briefing: Understanding the Gen Z consumer – A Steez bonus feature

In this bonus feature, Rebecca sits down with Jonathan Walker, executive director of Elevate's Center for the New Middle Class (CNMC). Jonathan and his team have conducted surveys and research with focus groups to better understand the unique needs and pain points for non-prime Americans. 

Since 2018, CNMC has collected a wealth of information by conducting monthly surveys with both prime and non-prime households to understand what’s happening within their finances. From this, the company has been able to glean a range of insights concerning the Gen Z consumer. 

In this Q&A, Jonathan and Rebecca dive into the nitty gritty of the research, like:

• Is a ‘read and heed’ philosophy all you need to teach Gen Zers about financial literacy? 
• How does the rise of personalization manifest in offering Gen Z guidance and tools for financial management?
• Gen Z consumers aren’t afraid to switch products if something isn’t working – how should financial firms keep that in mind?

So Jonathan, you've conducted a lot of research. What have you learned?

It's really interesting. Just to give you a bit of background – one of the things that we have is a tracker, which is a data set that is about five years old, where we're tracking American households’ finances through about 50 different metrics. 

So we're capturing a lot of information. And one of the things that we're capturing is around different age groups. And in the Gen Z space, we’re noticing a lot more flexibility in terms of their choices of financial products – especially the new and emerging ones. 

They're less likely to be using traditional products, and they're much more exploratory in terms of what matters to them and in terms of financial wellness products. 

But the other thing that's interesting is they're a little bit more fragile. And that, of course, isn't a huge surprise: They haven't amassed enough wealth yet to absorb some of the financial hurdles that they're hitting in life. So one of the more interesting data points is that two-thirds of Gen Z respondents say that they run out of money at least four times a year.

What more can you share about that? What are Gen Zers themselves doing to alleviate this pain point?

So one of the reasons that this is happening is because when we were much younger, credit cards were available anywhere – everybody could get a credit card. In fact, there was a lot of criticism of the industry regarding credit cards being too available. 

Well, today, they're much less available to the new generation of adults. And what that means is that they have less ability to absorb the bumps in the road from a month-to-month standpoint. 

It's very likely that we all get hit with some kinds of unexpected expenses month to month. But for many of us, we can just put those expenses on a credit card and pay them over time – even if it means paying them with our next paycheck. But when you don't have access to that, running out of money becomes a little bit more crisis-inducing – it means that you've got to juggle things, you've got to potentially miss payments on something else in order to make things work. If your transmission goes out, you still have to get to work somehow. And so it's absolutely urgent that that problem gets solved. 

What ends up happening is that when Gen Zers have lower access to traditional forms of credit, it means that they end up exploring a wider range of other kinds of products. And they're very comfortable doing that – they're very comfortable using things like BNPL. They actually have a higher propensity of using things like payday loans by about 50%, and are more likely to use some of those other alternative products. 

It’s really a testament to this generation’s ability to be flexible. We can see that even in the app usage data: Gen Zers are about twice as likely as their parents and three times as likely as their grandparents to just download and try different apps – it's very common for them.

What does it take for a brand to not only capture and attract them, but actually keep them long-term?

Rebecca, that is probably the million-dollar question. And I think the key here is recognizing that if you're an old fogy, you might call them fickle. I think that they're far more practical than that. I think Gen Zers look at things and if they work for them, they'll use them, and if they don't work for them, they'll abandon them. And they'll abandon them very quickly. 

Brands have to understand the short-term implications of whether or not their services are working for the consumer in the space of ‘right now’. They can't rely on this idea that, hey, this will benefit you in the long term – just stick with us for 10 years, and everything will be good. If you can't communicate the benefit to the Gen Z lifestyle right now, they're not going to stick around. 

The first thing that you’ve got to do is be able to really nail an understanding of what the Gen Z consumer wants right now. And to be able to communicate how your product and your services connect to that desire of ‘right now’. Then you can start to paint the picture of how this will benefit them in their long-term goals.

What do you think are the key pain points that need to be resolved by service providers? What are Gen Zers most struggling with? And what could really improve their lives as well?

I think that one way to put it is that while the American Dream is alive, for Gen Z, what that American dream is has shifted a little bit. For our grandparents, the people coming of age in the 1950s, 1960s, or 1970s, the American Dream was attaining a level of prosperity: The house, the 2.5 kids, the two cars in the garage – those were the main life goals. 

And I think for Gen Z, what we're finding is that prosperity is the means to the end, it is no longer the end that they're trying to obtain. And so when they're moving into their work lives and their financial lives, they aren't looking at the idea of amassing wealth in its entirety as the end. 

Rather, they would like to be able to live their lives in terms of the hobbies, pursuits and values they want to live by, and wealth is seen as a means to that end. No longer can we as financial services providers take for granted that telling someone that this is the best way to retire comfortably is enough to inspire people to action – we need to know how to communicate to Gen Z in terms of what it is they want to accomplish, and how certain behaviors will help them accomplish that. And if we can't connect those dots, you're going to lose a lot of them. They're going to chase what they want, and they're not going to be able to accomplish a lot of the things that they want to accomplish, because we fail to connect the need for financial wellness in order to accomplish what they're trying to do.

So where does the responsibility lie? And where's the change going to come from, in your opinion?

This is a really interesting problem. The idea of financial literacy is one that has been grappled with in academic literature for the last 20 or 30 years. And one of the most potentially discouraging findings from that research is that financial literacy education dissipates very quickly – the benefits almost disappear within a year. And that means that it's not just about information.

This is the problem: We've gotten it into our heads that everybody will make the right decision if we just put the same stuff into their head that is in our head. If they just understood how to calculate the APR, then everything would be sunshine and roses, and we'd be fine. The reality is, that's not how human beings function. And that's certainly not how they function in terms of money. 

What's most important, in fact, when we talk to consumers about how they've learned how to manage their money, some of them say by example from their parents – either positive or even negative. We hear people say, I saw my parents do this, and I'm never going to do that. One of the biggest things that we see is people talk about the school of hard knocks – I learned because I just had to deal with it, and I had to engage with it. And this is something that I think is even more relevant to Gen Zers: they are very practical, they're going to be much less likely to read 10,000 words on a blog about how to manage your budget. But they're going to be far more engaged with the idea of ‘how do things react to my life directly?’ And so it's going to be very experiential.

At Elevate, we have financial wellness tools that are about experiential wellness. And what we mean by that is you have the opportunity to go in and understand the implications of your behavior before you actually have that happen. One example is something we have called Road to Results, where you can go in and see literal, real-life data about how people improve their credit score, what they did month to month to do that. We're giving them an opportunity to walk in someone else's shoes, as well as twenty other people's shoes, until they start to understand how it works. And that becomes very experiential. 

Another tool that we have is called ‘Score 40’, where if you have damaged credit, or if you're non-prime, you can answer a few questions, and it can give you information about what you can do to just get your next 40 points. We're not talking about how to get to 820 – we're talking about how to get to the next 40 points no matter where you are. And it gives them something to anchor on. Very simple. 

The last thing that we've got is called Money Mindfulness, where we give advice about how to manage your money in a way that is anchored to your values. Because if the advice isn’t linked to your values, you're going to fail to implement that advice – you might implement it for a month or two, but it's just going to be very difficult for you to do it over a long period of time. And when you fail, you're going to assume that you're the problem, rather than the advice. 

What then happens is people start to say, "I'm just not good with money," throw up their hands and go through life with that narrative in their head, and all the while what’s really happened is we've failed to connect them with the advice that would match their values and the way they think. 

Jonathan, are there any other takeaways that you want executives and founders to think about when they're making their products?

Let me throw out a few different statistics: One is Gen Zers are not lazy – they are significantly more likely to hold two or more jobs, which means that often they're cobbling together a financial life that works for them. Some of that may be by necessity, some of that might be based on the kind of lifestyle that they want to live. But it's important to recognize that they're not just sitting back waiting for the world to come to them.

The second piece of statistics that I'd love to share with you is Gen Zers are much more likely to have access to a 401(k) program that does not have company matching. And that becomes a little bit of a problem, because it makes it harder to build wealth without that. 

It's a really easy conversation to encourage someone to contribute to their 401(k) because they're leaving matching funds on the table. But when there are no matching funds, it takes a different conversation to help them understand the benefit of contributing to their 401(k) and how to do that both short-term and long-term. Parallel to that, it's important to recognize that they often don't have the same access because of the stage in their career, the kinds of jobs they're doing, or any other number of circumstances.

The last thing I'll tell you – and this is one of the things that I am especially struck by – is that Gen Zers are actually optimistic: they are very likely to say that they are confident that they'll be able to reach their long-term or short-term savings goals. It’s not that they’re wearing rose-colored glasses – they understand the challenges that they're up against – but they're very optimistic about addressing those problems.

And so, for financial services experts, that means embracing the fact that Gen Zers are going to be positive and optimistic about their future. And the more you can plug into that optimism and help fuel that positive behavior, the more you're going to be resonating with them, because they're not the kind of people that are head in the hands, struggling, even when we see that they have lower wealth, lower opportunities for growth, and lower access to financial wellness tools and financial products. So it's important to realize that there is a lot of optimism in the youth, and we need to be able to engage with that and recognize it.