Gen Z: What to Know About the Next Generation of Investors

In this week’s World Reimagined, we look at the next generation of investors, how they compare to those that have come before and how their investing preferences and habits differ from previous generations. Generation Z (Gen Z or Zoomers) is the demographic cohort that follows Millennials but is before Generation Alpha. They are born roughly in the back half of the 1990s to the early 2010s and are mostly the children of Generation X (aka the latchkey generation). What Gen Z does and wants will have a major impact on society because Gen Z will become America’s largest generation by 2034, with a population of 78 million, according to Morgan Stanley (MS). 

To understand how Gen Z investing differs from their predecessors, let’s first look at the unique attributes of this generation: 

• Gen Z is the first generation to have portable digital technology from an early age, making them the first generation to be digital natives. The youngest in the generation was just five years old when the first iPhone was introduced. This is a generation that has little to no memory of a world without smartphones. According to the previously mentioned Morgan Stanley poll, 60% of Gen Z used a smartphone before the age of 14 and an estimated 3 out of 4 Gen Zers use money-transfer apps such as Venmo or Zelle at least once a month.
• Social media has become fully integrated into the daily lives of most Gen Zers. They are more image and video-oriented than text, driving TikTok to surpass Twitter (TWTR) in popularity for Gen Z in 2021.
• This is the most racially and ethnically diverse generation, with just 52% non-Hispanic white, versus 61% for Millennials, 70% for Gen X and 82% for Early Boomers. While less likely than Millennials to be immigrants themselves, they are more likely to be the children of immigrants, with 22% having at least one immigrant parent versus 14% for Millennials.
• They are expected to be the most well educated and are more likely to have a college-educated parent than was the case for previous generations.
• Politically, they are less likely than older generations to see the United States as superior to other countries, and they have a positive view of the nation’s growing racial and ethnic diversity.
• Gen Z tends to engage in risky behavior less than previous ones, with lower rates of teenage pregnancies. They also consume less alcohol.
• The Economist describes Generation Z as “stressed, depressed and exam-obsessed.” Rather than worrying about binge drinking or unplanned pregnancies like many prior generations report having done during their teen years, 70% of respondents to a Pew Research center poll reported anxiety and depression as major issues amongst peers. 

The Pandemic Impact

While Millennials came of age during the Great Recession, Gen Z would have come of age during a relatively healthy economy with record-low unemployment – that is until the pandemic hit. Now they face heightened uncertainty at the beginning of their adult lives thanks to both the global pandemic and the profound shifts in the geopolitical dynamics that have been in place for decades. 

This generation was harder hit than others by the pandemic. According to a March 2020 Pew Research Center survey, half of the older Gen Zers (ages 18 to 23) report that they or someone in their household lost a job or experienced a pay cut because of the pandemic. This is much higher than other generations, with only 40% of Millennials reporting the same, 36% of Gen Xers and 25% of Baby Boomers. The consulting firm BCG found that 66% of Gen Z members surveyed were pessimistic about the pandemic’s impact on their finances, a higher percentage than in any other generation, with Millennials at 61%, Gen X at 62%, and Baby Boomers at 51%.

Where They Research 

According to a March 2021 survey by CreditCards.com, Gen Z investors were nearly five times as likely to report that they get financial advice from social media as adults aged 41 and over, with 28% turning to friends and online influencers for guidance. The survey also found that Gen Z was more likely to seek financial advice, with nearly 80% reporting receiving advice versus 64% of Gen X investors and 60% of Baby Boomers. 

According to Motley Fool, 91% of Gen Z report having used social media for investing research, more than any other source of information, with 61% reporting Reddit as a trustworthy source. That said, 82% of Millennials and Gen Zers reported that traditional investing websites are trustworthy, and more so than other social media sources such as Alphabet’s (GOOG) YouTube. Of the social media platforms, 71% of Gen Z report using YouTube videos for financial information over the past month, 42% reported using Reddit, 36% used TikTok videos, 28% for Meta Platform’s (FB) Facebook, 32% used Twitter (TWTR) and 27% used Meta Platform’s Instagram. 

What Are Gen Zers Investing In?

An April 2021 Motley Fool survey looked at just what types of investments attract Gen Z:

• 73% own stocks, making them the most common type of investment for this generation.
• Growth stocks and dividend stocks are the most popular type held, both at 58% of respondents, with value the third most popular.
• Crypto also ranks high, with 47% of Gen Zers holding this new asset class.
• Despite their use of Reddit, meme stocks aren’t as widely used, with just 30% of respondents reporting that they own at least one.
• According to a McKinsey Research poll, 90% of Gen Zers believe that companies “have a responsibility to address environmental and social issues,” but it turns out that according to the Motley Fool’s survey, just 25% of Gen Z and Millennials reported owning ESG stocks and 32% reported not knowing what an ESG stock is.
• When it comes to sectors, the most widely held was Financial Services at 42%, followed by Technology at 40% and High-Tech/Emerging Tech at 38%.
• Gen Z is less likely to invest in mutual funds, at just 35% versus 47% for Millennials, with 15% of Gen Z using ETFs versus 23% for Millennials.
• 30% of Gen Z report bond investments.
• 39% report holding stock options.
• 22% report using index funds.

How Do Gen Zers Invest?

The combination of fierce competition amongst brokerages and technological innovation has made investing more accessible, with commission-free trading and easy access to trading through a variety of devices. This has led to Gen Zers becoming much more active than their predecessors. The rise of social media-based Finfluencers (financial influencers) has seen around 17% of those surveyed adopt a get-rich-quick mentality, expecting rapid double- or triple-digit returns, according to The Royal Mint. And 64% reported having experienced a loss due to such schemes.

A recent Nasdaq survey, in partnership with Morning Consult, also saw that the 2,000 retail investors surveyed support this get-rich-quick mentality. The survey found that 48% of Gen Z investors check their portfolios multiple times a day, while 24% check at least once a day. This compares to 39% and 22% for Millennials, 16% and 19% for Gen X, and 10% and 12% for Baby Boomers. That same survey found that Gen Z is much more active as well, with 34% reporting making trades a few times a week versus 26% of Millennials, 19% for Gen X, and 7% for Baby Boomers.

Historical research indicates that frequent trading is often correlated to worse returns, which is concerning for Gen Zers that are highly active. On the other hand, Gen Z spends more time researching an investment before buying or selling, with 40% spending at least 1 hour but less than a day, 30% spending at least a day but less than a week and just 3% not researching at all. This compares to 30%, 29% and 2% respectively for Millennials, 22%, 31% and 10% for Gen X, and 20%, 18% and 25% for Baby Boomers.

When we look at where they execute their trades, the newest brand ranked first among Gen Z, with 64% choosing Robinhood (HOOD) versus just 38% for Vanguard, 29% for Fidelity and 29% for Ally Invest. New platforms such as Wealthfront, Thinkorswim and Rally, are gaining some traction with 23%, 21% and 21%, respectively. The field is still pretty wide open, though, with 13 apps used by at least 10% of Gen Z and Millennial investors with no single app used by more than 37%, according to a study by The Motley Fool. The Motley’s survey found that 37% of those aged 18 to 40 reported having used Robinhood in the past month versus 40% of those aged 18 to 24. 

The Bottom Line

Overall, the level of financial literacy in America is fairly low, thanks to limited formal personal finance education. The good news is that most of us have access to an enormous amount of information in the palm of our hands, thanks to smartphones. Gen Z’s innate comfort with such powerful tools bodes well with their ability to get educated. The reality is that personal finances are intensely personal, so individuals need to educate themselves in a way that fits their own needs. Seek out credible advisors that address your specific circumstances. Actively look for differing opinions so that you can fully understand the risks and make informed decisions concerning not on what you are going to invest but what kind of investment timelines work best for you.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MS GOOG HOOD

Other Topics

Smart Investing Stocks Markets Cryptocurrencies Companies