As the world develops, generations are experiencing very different lives than those who were born before them. The way people live and work has changed drastically over the past 100 years and has therefore had a big impact over how individuals choose to approach their finances.

Understanding how different generations manage their finances is key to wider financial planning for you and your family.

There are four widely recognised generations which are relevant in today’s financial world. Although exact dates for each generation are widely debated, there is a general consensus over when they occur. These consist of Baby Boomers (born 1946-1964), Gen-X (born 1965-1980), Millennials (born 1981-1996) and Gen Z (born 1997-2021).

Each of these age groups have experienced different circumstances in their formative years which has had a direct impact on their relationship with money as adults.

Baby Boomers

Baby Boomers grew up in a post-war period which experienced a wealth of reforms in public services and provisions. This has meant that they have largely benefitted from governmental policy making. They enjoyed affordable housing, advancements in free healthcare and are receiving good pensions as a result of long-term loyalty to their previous employers.

They are likely to place a bigger emphasis on the government providing them with a good retirement income[1]. There is a heavier reliance on the government to provide for them in their later life as they have grown up with increased government subsidies and a mentality that the world would improve with time. They have enjoyed a better standard of living and have come to expect this in their old age.

Due to their age, their retirement is their biggest financial concern. Due to the increased wages they received during their adult lives, they are more likely to be able to afford to support themselves throughout retirement.

Gen-X

Gen X experienced a distinctive shift in attitudes, compared to their parents, due to their increased life expectancy. There has been a move towards long term health instead of wealth[2]. This generation is aware that there will be increased care costs in later life as they will live considerably longer than their parents. This means that they may have to budget for residential care or a live-in carer at home.

Their largest financial concern is likely to be their mortgage. Whilst buying a home will have been a manageable financial goal, as they age, they will be conscious that their mortgage is not a cost they can afford in retirement.

It is also becoming evident that they are not benefitting from the same level of governmental support as their parents did. Due to the increase in incomes within this age group, they are now paying more in taxes than they receive in benefits[3]. Whilst they are enjoying the benefit of higher wages, as their parents did, they are also required to sacrifice more of this income to support those around them.

Millennials

Millennials often make headlines due to the clear differences that have been observed between them and the generations before them. They are the first generation to not enjoy higher incomes than those who were born before them[4]. This has created an entirely different foundation for their financial journeys as adults. They are much more reliant on parental support in order to achieve their financial goals and are more likely to be affected by both short- and long-term financial issues[5].

This has created a generation whose biggest financial priority is to save for their first home[6] but also the first generation who are unlikely to achieve this on their individual wage alone. This has led to Millennials adapting a more flexible approach to working life. They no longer see retirement as a cliff edge and instead believe that they will transition with a part time role in order to be able to afford the lifestyle they wish to have.

Those who are aged 25 and above will have paid more in both direct and indirect taxes than almost every generation before them did at the same age[7]. Ultimately, they are paying more and receiving much less. This is impacting their standard of living and creating a generation of dependence.

Gen-Z

Gen Z are currently the youngest individuals in the workplace. They have observed the behaviour of their parents and grandparents and have adapted their response to finances accordingly.

A large proportion of Gen Z see inheritance as the only way to achieve financial independence[8]. Due to stagnant wages, rising house prices and growing student debt, they are unlikely to be able to afford to purchase their own home and support themselves independently as adults. A cash injection from parents or grandparents who have benefited from more favourable circumstances is often viewed as the only way they will be able to develop in their financial lives. Gen Z also have the new burden of having to support their own parents in later life. It is now more likely that their own parents have not adequately planned for their later life care and their children may have to foot the bill. Auto enrolment only came into effect in 2012. There are many people who were not saving for their retirement prior to this point and who will not have saved enough in order to enjoy their retirement when it arrives. The well-known phrase, ‘bank of Mum and Dad’, is likely to become defunct.

Gen Z typically has a more ethical approach to their finances. If they are able to invest, it is likely that they will choose ‘green funds’ which do not have a harmful effect on the world around them. They are also more likely to choose to bank with organisations who take a stance against climate change and who are actively working towards more sustainable practices.

This generation has been labelled as ‘reckless’ and having a ‘present bias’ however it can also be described as ‘bucket list living’[9]. This section of society is hyper aware of the difficulties they will have in achieving typical financial goals such as buying a house or being able to afford to have their own children. This has led to individuals choosing to spend their money more frivolously than their parents in order to reach more short-term goals which seem to be more achievable.

Growing up in a recession has also led to Gen Z being more risk averse than the generations that have preceded them[10]. They are more price conscious individuals and more likely to be aware of the need to budget and be financially cautious. Despite the growth in availability of free and informative financial education, they are more likely to consult friends and family for financial guidance. 73% of Gen Z would consult relatives for help which is nearly double the proportion of Millennials (44%)[11]. This is a great opportunity for families to work together to help educate their descendants.

How does this influence my financial planning?

Depending on how you plan to organise your wealth amongst your dependents may be affected by their generational outlook. If you wish for your wealth to be spent in a particular way, it may be worth considering a trust as this can allow you to control how and when your money is made available to the beneficiaries. You may also wish to gift your wealth whilst you are still alive in order to enjoy the effects it may have on your recipients.

Being aware of how your recipients feel about money can help you to understand how your wealth may best benefit them. It will also highlight any issues that may occur in the future. Discussing any concerns you have with a financial planner can help you to find a solution and provide peace of mind surrounding your finances.

If you would like to find out more, get in touch via info@lffp.co.uk or call 01603 706 820.

[1] Columbia Threadneedle, ‘How different generations are adapting to a new financial future’, Columbia Threadneedle Investments, November 2020, columbia_threadneedle_course_correction_uk_010620.pdf (columbiathreadneedle.co.uk), accessed on 24/01/2022

[2] Ibid.

[3] Weber, Dominic, and Cockle, Sam, ‘Generational income: The effects of taxes and benefits’, 21st August 2019, Generational income: The effects of taxes and benefits – Office for National Statistics (ons.gov.uk), accessed on 24/01/2022

[4] Columbia Threadneedle, ‘How different generations are adapting to a new financial future’, Columbia Threadneedle Investments, November 2020, columbia_threadneedle_course_correction_uk_010620.pdf (columbiathreadneedle.co.uk), accessed on 24/01/2022

[5] Ibid.

[6] Nair, Praseeda, ‘Research into financial knowledge reveals major generational differences in attitudes towards financial priorities and money management’, Growth Business, 3rd May 2016, Generational differences reveal gaps in financial knowledge (growthbusiness.co.uk), accessed on 24/01/2022

[7] Weber, Dominic, and Cockle, Sam, ‘Generational income: The effects of taxes and benefits’, 21st August 2019, Generational income: The effects of taxes and benefits – Office for National Statistics (ons.gov.uk), accessed on 24/01/2022

[8] Ibid.

[9] Nair, Praseeda, ‘Research into financial knowledge reveals major generational differences in attitudes towards financial priorities and money management’, Growth Business, 3rd May 2016, Generational differences reveal gaps in financial knowledge (growthbusiness.co.uk), accessed on 24/01/2022

[10] Target, Generation Z: Fuelling disruption in financial services, Target: A TechMahindra Company, December 2019, Generation Z – Fuelling disruption in financial services – Target Group, accessed on 24/01/2022

[11] Ibid, page 8.

Important information

This is solely for informational purposes and nothing in it is intended to constitute advice or a recommendation. While considerable care has been taken to ensure this information is accurate and up-to-date, no warranty is given as to its accuracy.

This article constitutes a financial promotion.

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