The Rise of Soft Saving: Gen Z Challenges Traditional Financial Norms

Younger Generations Embrace a "Soft Life" Approach, Prioritising Experiences Over Traditional Savings. In a shift away from the conventional narrative of working hard, saving diligently, and retiring early, a new trend known as "soft saving" is gaining momentum among younger workers, particularly Generation Z. This generation, born after 1997, is leading the charge by placing a higher value on experiences and personal growth, challenging the traditional notions of financial planning.

The Prosperity Index Study by Intuit has identified this emerging trend, defining soft saving as allocating less money to future savings and instead directing more funds towards present experiences. According to the study, this is part of a broader lifestyle choice termed the "soft life," characterised by a focus on comfort, low stress, and an emphasis on mental wellness.

Ryan Viktorin, Vice President and Financial Consultant at Fidelity Investments, describes soft saving as the "soft life's answer to finances," highlighting a cultural shift towards balancing financial responsibilities with a desire for a more fulfilling present.

The study found that younger investors, particularly Gen Z, exhibit a softer approach to investing and personal finance than previous generations. Rather than solely pursuing financial gains, they are more likely to invest in causes aligning with their values and seek emotional connections with brands and professionals.

Recent data from the U.S. Bureau of Economic Analysis indicates a decrease in personal saving rates among Americans, with the individual saving rate dropping to 3.9% in August 2023, significantly lower than the 8.51% average over the past decade.

Ryan Viktorin attributes this decline in personal saving rates to the aftermath of the COVID-19 pandemic, where reduced spending during the pandemic years has led to a surge in current expenditures to make up for lost time. Additionally, inflationary pressures make it challenging for individuals to cover expenses or save for the future.

The shift in financial priorities is also reflected in retirement planning. A report by BlackRock reveals that only 53% of workers believe they are on track to retire with their desired lifestyle. Concerns over retirement income, market volatility, and high inflation contribute to workers' need for more confidence about retirement.

Interestingly, younger workers, particularly Gen Z, focus less on traditional retirement. Two in three Gen Z individuals express uncertainty about ever having enough money to retire. However, a significant portion of the working population, across generations, considers working past 65 or forgoing retirement altogether.
The Transamerican Center for Retirement Studies indicates that about 41% of Gen Z and 44% of millennials plan to engage in paid work during their retirement years, surpassing the percentages for Gen X and Baby Boomers.

Despite the soft saving trend, millennials and Gen Z still actively participate in retirement savings plans. Fidelity's second-quarter retirement analysis reveals double-digit increases in average 401(k) balances for Gen Z and millennials, signifying a commitment to long-term financial planning.

As younger generations allocate less towards traditional savings, the study by Intuit sheds light on their spending habits. Millennials and Gen Z are more willing to spend on hobbies and non-essential purchases than Gen X and Boomers. Travel and entertainment are vital areas where the younger generation directs their funds, indicating a shift towards experiences over material possessions.

Andy Reed, Head of Investor Behaviour at Vanguard, notes Gen Z's increased spending on entertainment, emphasising the importance of balancing near-term needs with long-term financial goals. While the soft saving trend challenges traditional financial norms, experts caution against misconstruing it as reckless spending. Gen Z appears to be living within their means, with increased spending reflecting the rising costs of essentials rather than a taste for luxury.

In essence, the rise of soft saving signifies a paradigm shift in financial attitudes, with younger generations prioritising a more balanced and experiential approach to life and money.