Adam Finlay, Associate Investment Director (Birmingham) – Investec Wealth & Investment
Article by Reena Sukha
Gen Z, the digital natives who are taking over from millennials, are setting future financial trends. But what makes them tick?
Digital-first customers are no longer the future of banking – they are the present.
Millennials (25-39 years old) and adult gen-zers (18-24) represent over $3 trillion in spend . The sheer size of gen Z should be reason enough for financial institutions to start paying attention to this generation.
Analysis by Bloomberg  suggests that this group will make up a hefty 32% of the global population in 2019 – outstripping even millennials.
Estimates of what they and other generations close to them will inherit over the next years range from $15 trillion to $68 trillion, and some are expected to also become wealth creators at a younger age.
So, first off, who is gen Z?
Let’s start with an overview of the world’s most socially-focused, technologically-advanced and social media-obsessed generation.
Nicknamed ‘digital natives’, this generation has very little memory of a world that existed without smartphones and easy access to the internet and worldwide communication.
Possibly not quite the cynics that their millennial predecessors are, gen Z (people born between 1997 and 2012) are considered to be the most optimistic generation alive who prefers to work smart, not hard.
As the fourth industrial revolution takes place, technology and social platforms have become a second native language for this savvy group, who are using their tech knowledge and easily accessible online resources to their advantage to better understand how they can be financially successful now, and in the future.
Also, the line between a person’s societal expectations, upheld morals and the banking products they choose to use is blurring. Gen Z is said to value individual expression, avoid labels and mobilise themselves for a variety of causes. These traits bleed into their expectations of financial products as they align what they buy with their own personal branding and beliefs.
UK-based sustainable funds in 2008
UK-based sustainable funds in 2017
With 78% of millennials planning to use more digital tools in wealth management versus 31% of Boomers,  it’s interesting to see how much action is going on with Environmental, Social and Governance (ESG) funds, which allow people to invest into funds that align with their own value system;  UK-based sustainable funds have spiked from £4.4bn in 2008 to £15.4bn in 2017. 
Gen Z looks for an alignment between their values and those of the product they are investing into. They care about an institution’s stance on criteria that impacts society – are they eco-conscious, do they have an authentic strategy and have they got easy-to-use features like carbon tracking and offsetting?
In a similar vein of socially positive impact banking, gen Z is the second highest generation  to have donated to charity. Having an option built in to do that within an app and a choice to take rewards from their bank in the form of matching all money donated could give providers a much-needed moral edge.
Understanding gen Z’s financial habits
We would be remiss if we didn’t bring up the current pandemic we’re all dealing with.
Unlike millennials, who came of age during the Great Recession, gen Z was expected to inherit a strong economy with record-low unemployment. This changed overnight in early 2020.
Many young people were completing their studies, looking for internships or new employment. Now there’s the added pressure of having to deal with an uncertain future, and appealing to businesses conducting significant layoffs and also dealing with a rocky future themselves.
Covid-19 has unleashed a wave of entrepreneurialism , making gen Z more likely to make money online.
Although generation Z might still be living at home with very little income, they are more likely to put that money to work more smartly and are much more cautious about spending. An Accenture report this year shows that 68% of those in the gen Z bracket actually budget and save more responsibly than their older counterparts.  Plus, more than a third of generation Z have savings that amount to more than £1000  and are less than gen X to have any debt. 
So what is important for gen Z when it comes to their banking products?
There are three areas we could cover here, how gen Z are investing, how they deal with physical cash and rewards, and how they make payments.
Younger generations are much more open and aware of the potential financial opportunities cryptocurrencies can bring. Although financial institutions are cautiously approaching the concept of crypto, especially after the FCA’s warning  to those investing in alternative currencies that they will not be reimbursed if they lose their money to scammers, it makes sense for financial institutions to think about how to approach cryptocurrencies and emerging payment methods as demand increases.
A no-hassle, no-fuss approach to banking is preferred by gen Z. They may love a flashy card  yet do not want to attract attention to themselves or even think about banking. Gen Z is said to be a lot less flashy than previous generations; they want societal action, not gimmicks.
The ability to pay on the go, have a seamless transition between shopping and paying anywhere online or in-person, to sending money to friends and family is incredibly important.
They need a place that can provide many types of services that suit their specific needs, or they will be more than happy to find a different option elsewhere. As the need for instant gratification amongst all generations continues to grow in our fast-paced world, generation Z are understandably keen to have banking services that fits around their lives, not the other way around.
Every month, more than 50% of this segment use digital wallets and over 75% use other digital payment apps or peer-to-peer (P2P) apps.  The burst of payments products on the finance scene only goes to prove that payments are one of the most frequent interactions customers have, and yet there is so much potential for innovation in that space.
Gen Z is forcing us all to reimagine our digital future, and there is no denying that financial institutions need to step up on how to cater to one of the most financially-savvy generations this world has seen. This is not only for the benefit of this generation – honing in on the needs of one subsect of society can create new thinking around solving challenges for clients across the board.
At Investec, we see the potential of generation Z – younger generations are excellent trend-setters who have the opportunity to change the lay of the land at a moment’s notice. We predict that this generation will take hold in our client base in less than a few years’ time. This is why it’s important for us to future-proof ourselves by better understanding who these people are, and their differences in financial habits and behaviours.
To find out more about how Investec can help, please contact Adam Finlay, Associate Investment Director, Birmingham – Adam.Finlay@investecwin.co.uk