By far the most popular episode in the eight seasons of The Globe and Mail personal-finance podcast, Stress Test, was about how young adults are increasingly giving up on home ownership.
Between inflation, high housing costs and a volatile job market, millennials and members of Gen Z are feeling detached from the financial life cycle of previous generations. Home ownership seems out of reach for many, and so does retirement. Some are deciding not to have children, which is the topic of yet another popular Stress Test episode.
What do you do with your money if you don’t see houses, kids or retirement in your future? For answers, check out a Gen Z trend called “soft saving” or, sometimes, “doom spending.” It involves de-emphasizing saving in order to enjoy the moment, be it through travel, pet care, expensive concerts or health and beauty spending.
Wipe that scowl off your faces, my fellow boomers. Soft saving is more a reaction to the precariousness of the world today than a comment on the character, drive or future success of Gen Z. The main resource these young people have is time, which if used right will help them get houses, start families and secure a comfortable retirement.
Every generation has its financial challenges. Boomers had mega-inflation and double-digit interest rates in the 1980s, Gen Xers are balancing the costs of kids and aging parents, and millennials graduated into the gig economy and expensive housing. Gen Z’s emergence into adulthood has been dominated by the pandemic and the shock of its financial and emotional toll.
Graduating and entering the work force at a time of soaring food costs, house prices and mortgage rates is one thing. When you add the uncertainty of a public-health emergency and repeated lockdowns, you get an additional layer of anxiety for young people who would otherwise be enjoying some of their best years.
There are good things happening in the financial realm today: high interest rates for savers, strong investment returns and a resilient job market. But Gen Z hasn’t accumulated a lot of cash to save or invest, and it doesn’t put the same importance on work that previous generations did.
Soft saving has been described as a reaction to “hustle culture,” which involves prioritizing your career. It’s also a turn away from the F.I.R.E. movement, which particularly resonated with millennials. F.I.R.E. – financial independence, retire early – requires aggressive saving and sacrifice to detach from the work force as soon as possible.
Think of soft saving as an extension of quiet quitting, which emerged in 2022 as a way for young people to push back on overly demanding employers by doing the minimum amount of work. You can say this about Gen Zs: They are independent-minded about careers and finance.
It’s hard to see quiet quitting and soft saving as a long-term way of life, though. As careers develop and incomes rise, home ownership, kids and retirement will seem more attainable.
If we’re honest, we have to acknowledge that unaffordable housing will squeeze out some young adults. But five years in the work force can turn a 25-year-old in despair about home ownership into a committed saver with a plan to buy at the age of 35.
Time is the equalizer for Gen Zs who feel they’ll never own homes, have kids or retire. If they remain in good health, these young adults should expect to live for 90-plus years. They can buy a home at 35, have it paid off between 55 and 60 and then pour money into savings for a retirement that begins at 70 and leaves room for two decades beyond the work force. Fifty years ago, people retired around 65 and barely made it to 75 on average.
We love overachievers in personal finance, including young people who got into the housing market in their 20s and have already put money away for retirement. But taking longer to reach these financial milestones is fine because it lets young people deploy their one overwhelming advantage over everyone else. That, of course, is time.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
Rob Carrick