Gens under the lens: The Gen Z consumer

Tearsheet is running a new series, Gens Under the Lens. It’s a look into the evolving financial archetypes of the generations — from Boomers to Gen X to Millennials to Gen Z. We look at the current research into their beliefs and habits, giving a sharper view for marketers and product people to better understand what drives today’s financial services customers.

The young and the restless among consumers, Generation Z is emerging as a demographic sector increasingly worthy of attention. With the oldest among them entering the workforce and starting their financial lives, this generation will be a key driver in shaping the future of fintech and banking services. 

Gen Z grew up with the internet, computers and smartphones. They dislike arduous processes, prefer something quick and easy, and have no problems switching between services and trying something new. Being tech-savvy and digital natives, they attentively curate their online time and have high expectations when it comes to digital interactions. 

As they’re not receiving a lot of formal education around financial matters, they turn to the online environment for information, especially social media. Zoomers invest more in crypto than their predecessors, and care about social equality and climate change. 

Gen Z archetype

Generation Z, also known as Zoomers, represents the generation of individuals born between 1997 and 2012, following Millennials, according to Pew Research. They are usually the children of Generation X, and make up around 20% of the US population. 

If Baby Boomers grew up with television, Gen Z grew up with computers. They were the first generation to be born in a time where computers and the internet were being commercialized for widespread use. Nearly 80% of teenagers got their first smartphone around the age of 12, and spend a median of five hours a day on their phone. 

As the cutoff point between Millennials and Gen Z is the year 1997, this younger generation has little memory of major political events in the US such as 9/11 and the Iraq/Afghanistan war that followed. Economic turbulences such as the 2008 market crash also bear little significance to them. For Zoomers, the Covid pandemic has been the most unstable period in their lives, and the first time they were financially impacted due to a rocky job market.

Nevertheless, their political and social views align with those of Millennials, both having a liberal set of attitudes. They care about social justice and climate change issues. While Millennials are currently the most diverse adult population in the country, Gen Z is even more diverse, as nearly half come from racial or ethnic minorities. 

Gen Z is set to become the largest group of consumers in the next decade, making them a pivotal group for the future of many industries. Their spending power is currently estimated at $143 billion. Gen Zers spend around $90 a day on average, the least of all other generations. Housing takes most of their disposable income, followed by groceries, eating out and education. 

Some of the older Gen Zers just finished college in 2020 and are now entering the workforce, meaning their spending power will continue to increase. Moreover, they’re expected to inherit $30 trillion of wealth in the coming decade together with Millennials. 

Money troubles: Why they worry

Spending their teenage years on their phones, Gen Z has become especially prone to struggles with mental health issues. They have been described as the ‘unhappiest generation ever’, as they suffer from low self-confidence compared to previous generations.

When asked how “things are going in the US”, 21% of Gen Zers said they were “scared” -- more than any other generation -- and only 12% said they were “optimistic”, when at least 23% of other generations felt that way, according to a Collaborata study. 

Among financial frustrations, it seems that they are the most annoyed with bank processes. Some 78% of Millennials and 83% of Gen Z consumers reported being frustrated with bank processes. That compares with 69% of Gen Xers and 57% of Baby Boomers reporting similar feelings of dissatisfaction.

Financial literacy: What they know (or don’t)

While Zoomers share some strong idealistic concerns for social causes, they can also be pragmatic when it comes to their financial well-being. With financial literacy not currently being taught in schools, many Zoomers are simply being educated by their parents or figuring it out via the internet. 

Gen Zers also said that aside from their parents, they trust banks and financial companies most when it comes to financial advice and information.

But the desire to learn more is there. Data from Experian showed that of recent high school graduates who had never taken a personal finance class, 43% said they want to learn to save, 38% want to learn to manage their expenses, and 36% want a class that teaches them how to file their taxes.

However, how Gen Z is learning about finance is quite different from previous generations.

According to a Credit Karma study, 56% of Gen Z and Millennials say they intentionally seek out information or advice about personal finance online or through social media platforms, with the majority of Gen Z seeking this information on Instagram (57%) and TikTok (52%).

This shows that they want to learn about finance, but in new, innovative ways. To attract and retain Gen Zers, service providers will need to develop products that offer value, and are authentic and educational.

Financial wellness is also one of their top priorities. In a Mark Beal survey of Gen Zers, financial wellness at 27% ranked ahead of career development (10%) and equal to physical fitness (27%) as a priority goal-setting area in their lives, second only to mental health (37%). 

How Gen Zers feel towards financial services

Digital-first banking

Mobile banking has become essential for Gen Z, with 97% accessing their bank account though a mobile device, similar to Millennials, a Cornerstone study has found. While the majority of Gen Z respondents interacted with bank representatives to open an account, they showed the least preference for talking to someone about getting information - they use direct contact mostly when they can’t find what they’re looking for online and because they find it faster and easier. 

Gen Z has the highest preference for opening a bank account online, with nearly 60% opting to open a bank account on desktop or mobile app, and only 12% would go to a branch, which is the top preference for Gen X and Baby Boomers. 

The study also revealed that, similar to other generations, Gen Z mostly cares about low monthly fees and quality of online tools when opening a new checking account. They cared less about the quality of in-branch experiences and bank employees compared to older generations. However, this might also be due to Gen Z having less complex financial lives, therefore requiring less support. 

Despite their digital-first mindset, some younger consumers still want and value high-quality human interactions in their financial lives. A third of Zoomers have an account manager at their primary financial institution to help them understand how well their financial life is performing. Around half of Gen Z consider the ability to schedule branch appointments through the mobile app to be critical or important, and 60% want the option to contact customer support through the app. 

Gen Z are taking on more debt

Younger generations have also met increasing debt levels during the pandemic. Gen Z showed the highest rate of change compared to the other generations, with total average debt up by 68% to just over $16,000 in 2020. Millennials followed with $87,448 in average debt, 11.5% more than in 2019. 

Notably, Gen Z recorded the highest yearly growth across mortgage debt -- up 19% to $169,470 --  and personal loan debt -- up 33% to $6,004 -- in 2020, according to Experian data. This is partly a result of younger consumers reaching an age when taking out loans is more common.

The rise in personal loan debt can also be attributed to the growing popularity of fintech lenders, which accounted for nearly 50% of new loan originations in 2019. Back in 2014, the figure was only 22%. 

Millennials and Gen Z represented 28% of personal loan customers for traditional banks, while 40% of loans issued by fintech brands were taken out by the two younger generations. 

When it comes to credit card debt, older generations decreased their debt at bigger rates -- more than 10% -- than Gen Z, who only saw a 6% reduction from 2019 to 2020. As younger generations typically carry lower balances and have lower credit limits, the average credit card debt for an adult Zoomer is the smallest compared to other generations at around $2,000. 

However, since the pandemic, credit card origination doubled according to a TransUnion report, with the return in consumer demand being most pronounced for Gen Z. The share of new cards originated for Gen Zers rose to 14.2% in Q2 2021, up from 13.3% in Q2 2020 and 9.5% in the same period of 2019. 

“As we enter this new phase of the pandemic where accommodation programs are not as prevalent and liquidity sources such as stimulus funds are drying up, it is a natural next step for consumers to reassess their current credit obligations and apply for new forms of credit – especially if access to credit was minimal in the first place,” said Matt Komos, vice president of research and consulting at TransUnion.

Interest in social causes

According to a BAI study, nearly 60% of Gen Zers would switch their financial services provider for one more committed to diversity, equity and inclusion or environmental, social and governance issues. Millennials are a close second at 55%, whereas only around 35% of Gen X and 17% of Baby Boomers would make the switch for these causes. 

Understandably, Zoomers care a lot about environmental matters, as they will live through the impacts of climate change more than their predecessors. They are showing an interest in green neobanks like Aspiration, Atmos and Ando Money, according to Lana Khabarova, founder of personal finance website SustainFi.

“Gen Z members care the most about climate change. They are showing interest in making their financial lives "greener," so they look for sustainable bank accounts and credit cards (where their deposits don't fund fossil fuels,” she said.

The Gen Z Consumer: Saving, investing, and spending

Together with Millennials, Zoomers will be the dominant banking consumers in the next decades, redefining digital engagement as well as financing and payments. Gen Z loves flexibility and integrated services, showing interest in trying out new technology solutions. 

For example, they show a clear shift away from traditional credit card usage, with Gen Z preferring non-credit flexible payment options like buy now, pay later (BNPL). They hold an average of only 1.4 credit cards, compared to 2.5 for Millennials and more than 3 for older generations. Meanwhile, 27% of Gen Z and Millennials used BNPL, versus 14% of Gen X and the US adult average of 17%, according to a GP Bullhound report. 

A study by eMarketer also found that the vast majority of BNPL users are either Millennials or Gen Zers 14 and over. More than 40% of BNPL users in 2021 were Millennials, while Gen Z represented around 30% of users. 

As Zoomers age, earn and shop more while BNPL services are becoming more mainstream, they are the most likely to opt for these payment options. The study found that by 2025, nearly half of Gen Z will have used BNPL services at least once a year, compared to 40% of Millennials and 30% of Gen X users. 

Furthermore, over 50% of adult Zoomers use a digital wallet and over 75% use other digital payment apps or Peer-to-Peer apps, according to a PYMNTS report. Younger generations are extremely likely to switch financial providers if they are unsatisfied or their needs are unmet, the report said. 

Crypto

Always plugged into the latest technology trends, Gen Z is also very interested in the crypto space. Over 50% of Gen Zers and Millennials invested in cryptocurrencies or funds that have crypto exposure, compared to 30% of Gen X and Baby Boomers, according to a BAI Banking Outlook report. 

Zoomers also invest a larger portion of their portfolio in crypto compared to other generations. While most Millennials, Gen X and Boomers allocate up to 10% of their portfolios to crypto, the majority of Gen Z respondents invested 10-50% in cryptocurrencies, according to a MoneyMorning study. Around 30% of Zoomers invested 30-50% of their portfolio in crypto, compared to 23% of Millennials and 24% of Gen X.

Financial tools and companies serving Gen Zers

The banking market is seeing an increase in teen banking products from both the established industry as well as new entrants. Legacy institutions like JPMorgan Chase and Wells Fargo are offering teen banking solutions, while neobanks like Revolut launched its sub-account Revolut Junior.

MX research showed that only 47% of Gen Z respondents claim to have an account with a traditional bank, credit union, neobank or technology company. This means that a large portion of this demographic is still untapped, leaving room for new entrants to make their play. 

Consequently, more and more neobanks and fintech platforms are focused on winning the hearts and minds of younger generations. Here are a few that are targeting this demographic segment:

Step

• Launched in 2020;
• Grew to more than 2.5 million users;
• Offers teens a fee-free FDIC-insured account together with a spending card, allowing them to build credit;
• It also has a peer-to-peer payment function;
• Parent or guardian is required to cosign for users under 18;
• Backed by celebrities and social media influencers such as TikTok star Charli D’Amelio and NBA player Stephen Curry.

Greenlight

• Launched in 2017;
• Serves more than 3 million parents and children;
• Partnered with JPMorgan Chase in 2020 to offer a kids account called Chase First Banking;
• It has savings and investing capabilities for children;
• Plans to offer parents an investing platform where they can research stocks and ETFs

GoHenry

• Launched in the UK in 2012, expanded in the US in 2018;
• It has 2 million members, adults and children
• Focuses on financial literacy, targeting parents of kids between the ages of 6 and 18 who want to teach their kids about finance;
• Parents can block/unblock their kids’ card, set spending limits, choose where kids can and can’t use their cards, and assign chores.
• Charges a monthly fee of $3.99 per account in the US;

Copper

• Targets teens between the ages of 13 to 19; 
• Offers users a debit card, peer-to-peer payments, direct deposit, automatic savings options;
• Encourages teens to save money through reward programs; 

hi

• Launched in 2021 with a digital wallet that allowed seamless payments across different messaging platforms (initially Telegram and WhatsApp, next LINE, Facebook Messenger, and others).
• A not-for-profit fintech that uses blockchain technology to build services powered by the community; 
• Reached one million members in less than 100 days;
• Aims to increase the adoption of digital finance to millennials and Gen Zers;
• Members can hold over 100 currencies, both traditional and crypto currencies, all in a single account.

Cash App 

• Became the latest fintech to aim its services at the Gen Z demographic when it announced last week that it would open the app to 13- to 17-year-olds. 
• Allows teens to send peer-to-peer payments through the app and use a customized Cash Card, with the proper consent of a parent or guardian.
• The platform is owned by Twitter CEO Jack Dorsey, who also runs the digital payments company Square 

A look into Gen Zers’ future

As early adopters of new technologies, Zoomers tend to set the trends when it comes to digital and mobile products. But as young consumers are also more fickle, it can be difficult for financial providers to offer products that stick. This pressures issuers to make products as attractive as possible, otherwise they won’t shy away from moving on to try something else. 

Financial institutions may lose customers even from the beginning of the onboarding process. Opening a new financial account can require up to 120 clicks, and it can take over a month for the account to be activated. Meanwhile, with an Apple Card or a PayPal for example, the account is fully functional in minutes. 

Fintechs are well positioned to entice the younger generation with their forward-looking products and applications. Gen Z are all about digital finance solutions, a market with low barriers to entry where new players show up with various incentives and top dollar user experiences. 

However, there are still opportunities for traditional banks to engage with Gen Z. This younger generation is thinking about its future and has clear financial goals they want to reach later in life. A report by the Center for Generational Kinetics shows that 91% of Zoomers plan to buy their own home someday, 69% think saving for retirement should be a priority and 66% are worried about accumulating or not being able to pay off debt. This shows that there is room for banks to support this demographic as they begin their financial journeys.