Soft savings trends are reshaping millennials’ personal finance goals

For most people, their goal is to work hard, save money and retire early. But the trend of “soft saving” is emerging among younger workers, challenging traditional thinking.

Soft saving refers to putting less money into the future and using more of it in the present.

Generation Z — the generation that puts experiences before money — is leading the so-called soft saving wave, according to a Prosperity Index study conducted by Intuit. “Soft saving is the solution to a soft financial life,” the report said.

“Soft living” is a lifestyle that embraces comfort and low stress, while prioritizing personal growth and mental health.

The report found that the approach to investing and personal finance by Generation Z – those born after 1997 – was “softer” than previous decades.

What does it mean? This means that young investors tend to put their money into issues that reflect their personal views.

They also seek an emotional connection with the brands and professionals they choose to engage with, Liz Koehler, head of advisory engagement for BlackRock’s U.S. wealth advisory business, told CNBC.

Younger workers have a desire to break free from restrictive financial constraints.

An Intuit report showed that three out of four Gen Zers would rather have a better quality of life than extra money in their bank.

Indeed, personal savings rates among Americans today appear to reflect the trend of soft saving.

According to the US Bureau of Economic Analysis, Americans will save less in 2023 Personal savings rate — the portion of disposable income that one sets aside for savings — fell significantly at 3.9% in August, compared to an average of 8.51% in the past decade, according to Data From the economics of trading dating back to 1959.

One reason for the decline in personal savings is the recovery from the COVID-19 pandemic, said Ryan Victorin, vice president of financial advisor at financial services firm Fidelity Investments.

like Americans have spent much less during the pandemic in the past two or three years, and more people are likely to spend a lot more now to make up for lost time, she told CNBC.

In addition, Koehler said inflation makes it difficult for people to make ends meet or save.

The decline in personal savings rates also reflects a change in financial goals among today’s workers.

As young people enter the workforce, they bring new financial priorities and are more likely to embrace “the balance between the traditional ‘hustle’ of saving every penny and using some of their extra income to enjoy life now,” Victorin said.

Retirement is the grand finale for most workers. However, more people are concerned that they may not be able to retire at all.

A BlackRock report shows that only in 2023 53% of workers believe they are on their way to retirement With the lifestyle they want. A lack of retirement income, concerns about market volatility and high inflation were among the reasons cited for a lack of confidence about retirement among workers.

Younger workers also share the same sentiments, with two out of three Gen Zers unsure if they will have enough money for retirement.

However, this fear may not be a major concern for the younger generation, as most of them are already looking to retire early — or retire at all, the report from Intuit showed.

Additionally, the Trans-American Center for Retirement Studies found that Nearly half of the population is working You either expect to work after age 65, or you have no plans to retire.

Traditionally, retirement means leaving the workforce permanently. However, experts have found that the definition of retirement itself is also changing between generations.

About 41% of Gen Z and 44% of Millennials – those who are currently in the middle 27 and 42 years old – are more likely to want to do some form of paid work during this period the retirement.

The report from the Trans-American Center for Retirement Studies showed that this is higher than the 31% of Generation

This growing preference for lifetime income may make the act of “retirement” obsolete.

Although younger workers do not intend to stop working, there are still efforts to boost their retirement savings.

Fidelity in the second quarter Retirement analysis found that Millennials and Generation Z continue to be the main beneficiaries of 401(k) savings plans, namely 401(k) savings plans. Retirement savings plan Provided by US employers which have tax advantages for the saver.

The report revealed that in the second quarter of last year Average 401(k) Balances. Their numbers rose by double digits for Gen Z and Millennials – Gen Z saw a 66% increase and Millennials a 24.5% increase.

However, one question remains: Where do people direct their money as they spend more and save less?

The Intuit study found that Millennials and Generation Z are more willing to spend on hobbies and make non-essential purchases than Generation X and Boomers.

About 47% of Millennials and 40% of Gen Z expressed a need to have money to pursue their passion or hobby, compared to only 32% of Gen X and 20% of Boomers.

Experts highlighted travel and entertainment as non-essential experiences that the younger generation prioritizes.

Andy Reid, head of investor behavior at the investment management firm Gen Z spending on entertainment rose to 4.4% in 2022, compared to 3.3% in 2019, Vanguard said.

In addition, Americans are “refocusing” on travel after the pandemic, a likely reason for the decline in personal savings rates, Fidelity’s Victorin said.

Although the younger generation is saving less, this does not mean that they are living paycheck to paycheck.

In fact, “Gen Z appears to be living within its means, and their increased spending seems to reflect rising costs of basics more than their increasing penchant for luxury,” Reed noted.

“Spending money on things that really make you happy is a great thing… [but] He added that people should meet their near-term needs and stay on track to achieve their long-term goals before spending freely.