The Sunday Mail
FOR most people, their goal is to work hard, save money and retire early.
But a “soft saving” trend is emerging among younger workers, challenging the traditional way of thinking.
Soft saving refers to putting less money into the future, and using more of it for the present.
Generation Z — a generation that puts experiences before money — is leading the so-called soft saving wave, according to the Prosperity Index Study by Intuit.
“Soft saving is the soft life’s answer to finances,” said the report.
A “soft life” is a lifestyle that embraces comfort and low stress, prioritising personal growth and mental wellness. The report found the approach to investing and personal finance by Gen Z’s — those born after 1997 — to be “softer” than in previous decades.
What does that mean? It means younger investors tend to put their money into causes that reflect their personal views.
They also seek emotional connection with brands and professionals they choose to engage with, Liz Koehler, head of adviser engagement for BlackRock’s US Wealth Advisory business, told CNBC.
Are people saving less?
Younger workers have a desire to break free from restrictive financial constraints. Three in four Gen Z would rather have a better quality of life than extra money in their banks, the Intuit report shows.
In fact, personal saving rates today seem to mirror the soft savings trend.
According to the US Bureau of Economic Analysis, Americans are saving less in 2023.
The personal saving rate — the portion of disposable income one sets aside for savings — was significantly lower at 3,9 percent in August, compared to the 8,51 percent average in the past decade, according to data from Trading Economics which goes as far back as 1959.
One of the reasons for a drop in personal savings is the rebound from the Covid-19 pandemic, said Ryan Viktorin, vice president of financial consultant at Fidelity Investments, a financial services corporation.
As Americans spent significantly lower during the pandemic in the last two to three years, people are likely to spend a lot more now to make up for lost time, she told CNBC.
Additionally, inflation makes it harder for people to cover their expenses or save, Koehler said.
The decrease in personal saving rates also reflects a change in financial goals among workers today.
As younger people enter the workforce, they bring in new financial priorities and are more likely to embrace a “balance between the traditional ‘hustle’ to save every single penny and using some of their extra income to enjoy life now,” Viktorin said.
Retiring and savings
Retirement is the grand finale for most workers.
A report by Blackrock shows that in 2023, only 53 percent of workers believed they were on track to retire with the lifestyle they wanted.
A lack of retirement income, worries over market volatility and high inflation were some of the reasons cited for lack of confidence about retirement among workers.
Younger workers also share the same sentiments, where two in three Gen Z are unsure if they will ever have enough money to retire.
However, this fear may not be that much of a concern for the younger generation, as most are not looking to retire early — and some do not want to retire at all, the report by Intuit showed.
Additionally, the Transamerican Centre for Retirement Studies found that almost half the working population either expects to work past the age of 65, or do not have plans to retire. Traditionally, retiring entails leaving the workforce permanently. However, experts found that the very definition of retirement is also changing between generations.
About 41 percent of Gen Z and 44 percent of millennials — those who are currently between 27 and 42 years old — are significantly more likely to want to do some form of paid work during retirement.
That is higher than the 31 percent of Gen X (those born between 1965 and 1980) and 21 percent of Baby Boomers (born between 1946 and 1964) surveyed, the report by the Transamerican Center for Retirement Studies showed.
This increasing preference for a lifelong income could perhaps make the act of “retiring” obsolete.
Although younger workers do not intend to stop working, there is still an effort to beef up their retirement savings.
Fidelity’s second quarter retirement analysis found that millennials and Gen Z’s are still major beneficiaries of the 401(k) saving plan, a retirement savings plan offered by American employers that has tax advantages for the saver.
The report revealed that in the second quarter of last year, the average 401(k) balances were up by double digits for Gen Z and millennials — Gen Z saw a 66 percent increase and millennials had 24.5 percent increase.
What are people spending more on?
Still, one question remains: Where are people directing their money as they spend more and save less?
The study by Intuit found that millennials and Gen Z are more willing to spend on hobbies and make non-essential purchases compared to Gen X and boomers.
About 47 percent of millennials and 40 percent of Gen Z expressed a need to have money to pursue their passion or hobby, compared to only 32 percent of Gen X and 20 percent of boomers.
Experts highlighted travel and entertainment as some of the non-essential experiences the younger generation is prioritising.
Andy Reed, head of investor behaviour at investment management firm Vanguard, said Gen Z’s spending on entertainment increased to 4.4 percent in 2022, compared to 3,3 percent in 2019.
In addition, Americans are “refocused” on post-pandemic travel, a possible reason there is a decrease in personal saving rates, said Fidelity’s Viktorin.
Although the younger generation is saving less, it does not mean they are living paycheque to paycheque.
In fact, “Gen Z appear to be living within their means, and their increased spending seems to reflect rising costs of essentials more than a rising taste for luxury,” Reed noted.
“Spending money on things that truly make you happy is great . . . (but) people should satisfy their near-term needs and stay on-track with their long-term goals before spending freely,” he added. — cnbc
