Gen Z Embraces ‘Soft Saving’ Methodology For Retirement Goals — Will the Practice Really Benefit Them Long Term?
The majority of people think about working hard and saving as much money as possible to retire early in life. However, there is a relatively new “soft saving” trend that has emerged among the younger generation of workers which breaks from traditional norms.
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What Is Soft Saving?
CNBC explained that soft saving refers to putting less money into the future and using more of it for the present. Soft saving translates into a so-called “soft life” — a lifestyle that embraces comfort and low stress, prioritizing personal growth and mental wellness.
“Younger generations value a balance between the traditional ‘hustle’ to save every single penny and using some of their extra income to enjoy life now,” said Ryan Viktorin, Vice President, Financial Consultant at Fidelity Investments.
Gen Z is the first generation that puts experiences before money. And they’re leading this soft saving phenomenon, according to the Prosperity Index Study by Intuit.
“Though Gen Z is interested in exploring and learning about saving and investing, the approach is much softer than in previous decades, and they would rather feel more fulfilled now than save for a future that is unknown.”
Gen Z’s Take On Money
Three in four Gen Zers would rather have a better quality of life than extra money in their banks, the Intuit report noted. On the whole, younger workers have a desire to break free from restrictive financial constraints. This point of view is clearly reflected in the savings behavior of both Gen Z and all U.S. workers today. One of the latest reports by Trading Economics showed that the household saving rate in the U.S. decreased to 3.9% in August 2023, compared with 5.3% in May 2023 and down from the average 8.51% savings rate over the last decade.
One of the reasons for a drop in personal savings is the rebound from the Covid-19 pandemic, explained Viktorin. Americans spent significantly less during the pandemic in the last two to three years, so people are likely to spend a lot more now to make up for lost time.
While people are generally saving less these days, it’s also worth noting that the average 8.51% savings rate over the last decade is skewed higher as savings rates between 2020-2021 topped a whopping 32% for a moment during the COVID-19 pandemic. This was likely the result of at-home lockdowns when people did not spend as much of their discretionary income on dining out, travel, and entertainment.
Here are some potential outcomes and consequences of Gen Z’s soft saving take on finances:
Not Having Enough Money Saved For Retirement: Embracing a soft saving lifestyle could result in less money saved for retirement. With continued rising costs across all areas of life, a soft saving lifestyle could result in a much smaller nest egg when it’s time to retire.
Having To Retire Later In Life: It’s no surprise that saving less now means potentially having to work many more years and retire later than average.
Not Being Able To Maintain A Soft Lifestyle Later: Maintaining a soft lifestyle now, including indulging and spending more on experiences rather than saving, will prove difficult to maintain when you stop working or aren’t able to work as much because of old age.
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Will Gen Z Be Able To Retire?
The answer to this question is unknown at this point. But, two in three Gen Z are not sure if they will ever have enough money to retire. Even the generation in question doubts if retirement is possible for them.
“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,” said Andy Reed, Head of Investor Behavior at Vanguard.
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 don’t want to retire at all, the Intuit report showed.
To add, the Transamerica Center for Retirement Studies indicated that about 41% of Gen Z and 44% 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. This is significantly higher than the 31% of Gen X (those born between 1965 to 1980) and 21% of Baby Boomers (born between 1946 to 1964) surveyed.
The general sentiment and definition of “retiring” among Gen Z is changing compared to the older generation, but it remains to be seen if soft saving and a soft lifestyle are sustainable.
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This article originally appeared on GOBankingRates.com: Gen Z Embraces ‘Soft Saving’ Methodology For Retirement Goals — Will the Practice Really Benefit Them Long Term?
