Say goodbye to your pension? There is a trend towards 'soft saving' among young people (2024)

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

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

Generation Z – a generation that values ​​experiences over money – is leading the so-called soft savings wave, according to the Prosperity Index StudyIntuitive. “Soft austerity is life's soft response to the economy,” the report states.

A “soft life” is a lifestyle that embraces comfort and low stress, prioritizing personal growth and mental well-being.

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

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

They also seek emotional connections with the brands and professionals they choose to engage with, Liz Koehler, chief engagement advisor at BlackRock's U.S. wealth advisory business, told CNBC.

Younger workers want to break free from restrictive financial constraints.

Three in four Gen Zers would prefer a better quality of life than extra money in the bank, the Intuit report found.

In fact, personal savings among Americans today appear to reflect the soft savings trend.

According to the US Bureau of Economic Analysis, Americans will save less in 2023personal savings interest– the share of disposable income spent on savings – was significantly lower in August: 3.9%, compared to an average of 8.51% over the past ten years, according tofactsfrom Trading Economics dating from 1959.

One reason for the decline in personal savings is the recovery from the Covid-19 pandemic, said Ryan Viktorin, vice president of financial advisory at Fidelity Investments, a financial firm.

If Americans have spent significantly less over the past two to three years during the pandemic. People are likely to spend a lot more now to make up for lost time, she told CNBC.

In addition, inflation makes it harder for people to cover their expenses or save, Koehler said.

The decline in personal savings also reflects a change in the financial goals of today's workers.

As younger people enter the workforce, they bring new economic priorities and are more likely to embrace a “balance of the traditional.”accumulation“To save every cent and use some of their extra income to enjoy life now,” Viktorin said.

Retirement is the big finale for most employees. But many fear they may not be able to retire at all.

A report from Blackrock shows that this will not happen until 202353% of employees think they are on their way to retirementwith the lifestyle they want. Lack of retirement income, concerns about market volatility and high inflation were some of the reasons for a lack of confidence in retirement among workers.

Younger workers share the same sentiment: Two in three Gen Zers aren't sure they'll ever have enough money to retire.

But this fear may not be as much of a concern for the younger generation, because most don't actually want to retire early — and some don't want to retire at all, the Intuit report found.

Moreover, the Transamerican Center for Retirement Studies discovered thatalmost half of the working populationexpect to work after age 65, or have no plans to retire.

Traditionally, retirement means leaving the workforce for good. However, experts discovered that the definition of retirement also changes between generations.

About 41% of Generation Z and 44% of Millennials – those currently in between 27 and 42 years old – are significantly more likely to want to do some form of paid work retirement.

That's higher than the 31% of Gen

This increasing preference for lifelong income may make the act of “retirement” redundant.

Although younger workers have no plans to stop working, efforts are still being made to increase their retirement savings.

Fidelity's second quarter A retirement analysis shows that millennials and Gen Zers are still major beneficiaries of the 401(k) savings plan, apension savingsoffered by American employers that offer tax benefits to the saver.

The report showed that in the second quarter of last yearaverage 401(k) balancesDouble-digit increases for Gen Z and Millennials – Gen Z saw a 66% increase and Millennials saw a 24.5% increase.

Yet a question remains: what do people spend their money on when they spend more and save less?

Intuit's research shows that millennials and Gen Z are more willing to spend money on hobbies and make non-essential purchases than Gen X and boomers.

About 47% of Millennials and 40% of Generation Z reported needing money to pursue their passion or hobby, compared to just 32% of Generation X and 20% of Baby Boomers.

Experts emphasized that travel and entertainment are among the non-essential experiences of the younger generation.

Andy Reed, head of investor behavior at the investment management firm Vanguard said Gen Z's spending on entertainment will rise to 4.4% in 2022, up from 3.3% in 2019.

Additionally, Americans are "refocused" on travel after the pandemic, a possible reason why there is a decline in personal savings, Fidelity's Viktorin said.

Even though the younger generation is saving less, that doesn't mean they have to live paycheck to paycheck.

“It appears that Generation Z is living within the limits of their means, and their increased spending appears to reflect the rising costs of essentials rather than a rising taste for luxury,” Reed noted.

“Spending money on things that really make you happy is great… [but] people need to satisfy their short-term needs and stay on track with their long-term goals before spending money freely,” he added.

Correction: This story has been updated to accurately reflect the Intuit report, which found that younger workers don't want to retire early, and some don't want to retire at all. An earlier version of the story was wrong.