In her ode to the big apple, Alicia Keys said, ‘if I can make it here, I can make it anywhere.’
Only to sing a verse later, ‘someone sleeps tonight with a hunger that’s more than an empty fridge.’
The song is 12 years old, but the message is current. Major cities like New York, London, and Hong Kong have become symbolic of ‘making it’. The wins are big, the falls are crushing. Innovation thrives, and so does inequality.
This polarity has caused chaos for young people. Armed with expensive educations, low credit scores, and limited access to loans, young professionals have been thrust into a world of zero hour contracts, back-to-back financial crises, and Covid-19.
Dutifully flocking to the city for a ‘proper’ job, but lacking the necessary luck (read: connections) to make it, many of them end up stuck behind a coffee machine, dishing out lattes to those lucky enough to land a lucrative career.
The one thing they do have on their side — more so than any other generation — is tech. And now young people are using it to take charge of their finances. Fintechs offering peer-to-peer lending, neobanks, and alternative credit scoring systems have placed them closer than ever to their (dwindling) funds, and stimulated a new age of financial activism.
Who better to take advantage of the new age of money than the internet generation.
Where did all the money go?
Gen Z is set to be the most educated generation to date — knocking their Millennial predecessors off the podium.
One obstacle both generations come up against is what they do with that education. Believe it or not, we’re still recovering from The Great Recession, and the jobs market ain’t what it used to be.
Unlike previous financial crashes, the 2008 fiasco hollowed out middle income jobs more than low paid ones. Boomers got pushed down the corporate ladder, and the majority of Millennials had to settle for the bottom rung. A slow recovery meant the jobs young people should have landed no longer existed.
We’re still seeing the impact of these events. According to research by the Bureau of Labor Statistics in 2019, 58.5% of people in accommodation and hospitality jobs were aged 20-44, some of the lowest paid jobs on the market. In the meantime, the median age of homeowners has been steadily creeping up.
Hop forward a year, and one in 10 UK workers between the ages of 16-24 were on zero hour contracts. In the US, Millennials, and Gen Z adults suffered the highest percentage of layoffs during the pandemic, with 35% of 18-29 year olds saying at least one person in their household lost their job. The story is worse for people of color; Black and Latinx Americans are more likely to have these jobs than their white counterparts.
Author and creator of Young Money Blog, Iona Bain highlights the disproportionate impact for young people, citing a 40% increase in their financial vulnerability during the pandemic, according to the FCA. Without sustainable jobs or assets to liquidate, Iona points out that many young people would have likely accrued debt, lost income, and let their pension contributions slide.
A whopping 65% of adults across the world felt pessimistic about rising wealth inequality long before COVID reared its ugly head. The pandemic isn’t responsible for wealth inequality, it just exposed and exacerbated it.
All the responsibility, none of the funds
Millennials and Gen Z will be responsible for solving some of the world’s greatest challenges. Everything from climate change and overpopulation, to the increasing prevalence of deadly viruses.
These challenges require innovative solutions. But research has shown that financial worries are so intrusive that they negatively impact our work performance. If all you can think about is affording next month’s rent, the sparkle of a big city job soon fades.
As author Joseph C. Sternberg argues in his book, The Theft of a Decade: How the Baby Boomers Stole the Millennials’ Economic Future, this generation finds themselves in a paradox. While daily life, on the whole, is much easier, milestones like landing a secure job and buying a home couldn’t be further from reach.
Children of the [fintech] revolution
There’s a glimmer of hope, though. During the pandemic, we all spent too much time on our phones. Young people were no exception, but what they did with them was fascinating.
A report by Mambu, a SaaS cloud banking platform, identified two up-and-coming ‘financial tribes’ growing amongst the under 35s.
One of these personas is the Neo-Asset Hoarder.
In a world in which traditional assets such as property and bonds seem unattainable, this group is getting in the door early on the new wave of digital assets.
- 31% of global consumers have already invested in cryptocurrencies
- 22% have invested in-game assets or currencies
- 11% in NFTs
Most of them are under the age of 35. And almost 20% of them switched banks during the pandemic. In countries such as Thailand and Vietnam, people hold similar levels of crypto as they do property.
According to Mambu, Neo Asset Hoarders are the tribe to watch when it comes to future banking trends as they push decentralized finance into the mainstream. While you may not have them yet, 49% of consumers say they’re more likely to buy neo assets in the next few months.
The second tribe is Covidpreneurs.
The wave of furloughs and redundancies experienced during the pandemic made it both difficult to maintain a job or to break into the career market for young workers who came of age during this period. But, according to Mambu’s report, a growing group (49%) have used this moment to start their own business or side hustle, with another 75% thinking of becoming entrepreneurs in the future.
One major gap this has highlighted is the ability for traditional banks to provide much needed loans to these new business owners. This is pushing forward the momentum of decentralized, peer-to-peer lending websites, like FIBR, that connect borrowers with private investors who, together, can provide the needed funds.
But it’s not just the entrepreneurial and investment minded who are getting into the game.
The future of personal finance
Long before the pandemic, challenger banks and open banking had become popular. But as the need to monitor, manage, and control our finances from home became a necessity, many more of us enlisted the help of digital solutions.
Countless neobanks have trading features, which means investment has become more accessible. And if the older folks think new age investors won’t tip the scales — they’re wrong. After all, a cohort of kids sent Gamestop’s stock through the roof.
When we look at the financial products that resonate with young people, it shows a generation claiming back their consumer power. Rebellion is a neobank loved by Millennials and Gen Z alike. The platform provides conventional banking tools alongside P2P payments, crypto, and trading. Users get a dynamic relationship with their money that reflects our fluctuating world.
How we use money is changing, and real-time financial products reflect that. Cash may be king, but digital money leaves a data trail. Not only can we map what people spend their money on and when, we can trace it back to their social media habits and the marketing that inspired their purchases.
A study from India goes so far as to suggest this data could take the place of traditional credit scores. The study shows that our mobile and social footprints have far more predictive power than a credit score, and could be used to make more accurate decisions. This could help provide much wider access to financial services.
One such company is ZestMoney, a ‘buy now, pay later’ platform that uses AI to provide users with a no-cost EMI which allows them to pay for a product in smaller monthly instalments at 0% interest — even if they don’t have a credit card.
It’s no wonder young people are trying to operate outside the usual financial systems — these institutions are simply not equipped to deal with the way we earn, invest, save, and spend money anymore. It’s like trying to measure the temperature of a volcano with your first aid kit thermometer. Sooner or later, you’re going to get burned.
Fintech won’t fix the generational wealth gap. But financial products that challenge the status quo could inspire the next generation to make personal finance an act of rebellion. By taking ownership of what they’ve got, and using products that do the work for them, our brightest hope might still have a shot at a better future.