Step Aside, Boomers: “Gen Y” and “Gen Z” Will Soon Be Driving the Global Economy
With apologies to the Baby Boomers, they like to talk about themselves. We’ve read a lot about the influence Boomers have had on U.S. culture and politics. The present writer sat with a group of undergraduate students a few years back as they listened with rapt attention to a Boomer professor describing his experience at Woodstock. From the awed looks on their faces, you might have thought he was telling them he had been present at the creation of the world.
Of course, that’s the myth: that the generation that came of age in the 1960s laid the foundations of the contemporary world. (It helps that Boomers have had the clout in media to write the stories of “how it got to be the way it is” and present the 60s as a golden age in which old taboos were broken and a new, freer social order was inaugurated.) A more balanced view of the Boomers suggests that after the countercultural explosion of the 60s, they then settled down to do largely the same thing that their parents had done: work, raise families, and enjoy their lives.
Still, generational cultural shifts are real. Each generation has the same project: to live a fulfilling human life, earning a living, pursuing a vocation, living in relationship with friends and family, shaping their communities, pursuing their interests and concerns. The need for work, the basics of life, and the companionship of a mate create a basic shape of life that doesn’t shift much from generation to generation. However, though the basic concerns are the same, the ways in which the generations pursue these primordial human goals can shift radically — and in the past 50 years of ever-accelerating technological change, they have shifted dramatically indeed.
We’ve gotten used to the Boomer “style” — which included, for example, a general cultural shift away from earlier and more rigid gender roles, and the social acceptance of less constrained expressions of human sexuality. But despite the mythic status of the 60s, the cultural influence of the Boomers is waning. The generations that are rising after them will be doing all the usual human stuff, but as the Boomers did, they will be doing it in their own way, and that implies big changes in consumption. Companies are founded or that adapt to give these ascendant consumers what they want will succeed and flourish. Those who fail to adapt will die.
Who are these rising generations? The divisions are arbitrary but can be useful. The Boomers comprise those born between 1946 and 1964. “Gen X” was born between 1965 and 1980. “Gen Y,” or the millennials, were born between 1981 and 1997. And the youngest, “Gen Z,” also called “iGen” or the “centennials,” was born between 1998 and today. By 2020, Gen Y and Gen Z will be 59% of the global workforce. These rising generations are, predictably, most numerous in the developing world, particularly in India and China, where they will be the largest part of the global middle class.
Why the Youngest Matter: the “Ripple Effect”
Gen Z is just on the cusp of entering the workforce. Research by the Center for Generational Kinetics on patterns of technological adoption shows that the driver is the youngest users, and new tech adoption “ripples up” from them. So it’s significant to study the opinions and habits of Gen Z as a clue to indicate what is coming next for all of us.
What are the relevant traits and characteristics of Gen Z? Here are some interesting notes from a variety of survey data.
They are the first true “digital natives.” A majority, when surveyed, would rather lose their sense of smell than their connected devices. They spend an average of 91 hours per month using apps. When asked about “necessities” they couldn’t do without, they rank WiFi above plumbing. 39% of them spend more time interacting with their smartphone than with anything else, including their family. On average, they get their first smartphone at the age of 10. Smartphone penetration in developed markets is above 90%.
The core of their connected experience is social. All humans are social, but Gen Z overwhelmingly has their social center of gravity in the virtual world. Perhaps surprisingly, given the anecdotal evidence we have heard, the “indispensable” app is still Facebook [NASDAQ: FB], with 71% of teenagers citing it as their top social media platform, followed by Instagram (owned by FB) and Snapchat. They spend on average Increasingly, they demand that a social media platform be a “one-stop shop,” a role FB has filled with instant messaging, video chat, and financial exchanges, as well as with its Instagram photo sharing acquisition. Physical letters are long forgotten; email is reserved for formal occasions; even texts are falling by the wayside in favor of instant messaging through various platforms. This goes hand-in-hand with a measured decline in attention span. (If you want the attention of a Gen Z consumer, get to the point fast and cover the details later.)
Physical letters are long forgotten; email is reserved for formal occasions; even texts are falling by the wayside in favor of instant messaging through various platforms. This goes hand-in-hand with a measured decline in attention span. (If you want the attention of a Gen Z consumer, get to the point fast and cover the details later.) Under various continued low-growth scenarios, developed-market Gen Z might be the first generation to be poorer than their parents, particularly in lower income groups. More millennials identify themselves as “working class” than at any time since that survey question began to be asked 30 years ago. They are anxious about retirement; surveys report a steady and significant number who expect to work until they die (more than a third in Japan).
Under various continued low-growth scenarios, developed-market Gen Z might be the first generation to be poorer than their parents, particularly in lower income groups. More millennials identify themselves as “working class” than at any time since that survey question began to be asked 30 years ago. They are anxious about retirement; surveys report a steady and significant number who expect to work until they die (more than a third in Japan).
Nevertheless — and this is one of the most encouraging results of our survey of the data — they are optimistic about their life prospects. They are enthusiastic about prospects for entrepreneurship, more frugal than their parents, and more realistic in their expectations. The Dotcom Crash and the Great Financial Crisis have, according to survey data, produced a more financially prudent generational cohort.
They care less about wearing the latest fashions, and more about getting a good deal. They would rather have more “experiences” than have more “stuff.” Social concerns are paramount — environmental and social — as is health, both
Social concerns are paramount — environmental and social — as is health, both diet and exercise. (On the other hand, millennials’ drinking habits outstrip those of their predecessors — so while they want to be healthy, they also want to have a good time.)
Think Intersection To play out the investment implications of the younger generational cohort’s emerging style of thinking and living, think intersection.
To play out the investment implications of the younger generational cohort’s emerging style of thinking and living, think intersection.
Where tech and social can intersect with any industry, the companies that successfully integrate them will triumph. For example, is brick-and-mortar retail doomed?
For example, is brick-and-mortar retail doomed? Not necessarily. A brick-and-mortar retailer that can attract through social media, and make its stores a place where social experience can occur, can thrive. The same is likely true for financial services; although younger investors still value trustworthiness and transparency as top priorities, they are also looking for firms which integrate technology.
The same is likely true for financial services; although younger investors still value trustworthiness and transparency as top priorities, they are also looking for firms which integrate technology.Educational firms that can capitalize on the technology for online coursework will win favor from business-minded younger consumers who are cautious about taking on debt for a traditional degree.
Educational firms that can capitalize on the technology for online coursework will win favor from business-minded younger consumers who are cautious about taking on debt for a traditional degree. Travel companies —
Travel companies — particularly again if they can integrate tech and social — represent the peak of the “experiences” that the younger consumer cohorts prefer over amassing more “stuff.” Millennials and Gen Z consistently rank travel as their chief recreational interest — particularly travel during which they encounter authentic local culture rather than sanitized resorts. And with Gen Z about to rise, some incumbent technology firms — such as FB, Amazon [NASDAQ: AMZN], AirBnB, and Uber —
And with Gen Z about to rise, some incumbent technology firms — such as FB, Amazon [NASDAQ: AMZN], AirBnB, and Uber — may be just at the beginning of their runway. Of course we should also mention the older-line tech companies who build the backbone which supports the superstructure of all these consumer-facing firms. (Note that we do not necessarily believe their current stock market valuations are necessarily justified or invulnerable — simply that their prospects for business growth are bright given the demographic trends we’re discussing.) As the millennials reach peak income and spending in the next five to seven years, and as the younger cohort enters the workforce and begins spending more than just their parents’ money, bear those themes in mind: tech and social integration rule over all; experiences matter more than stuff; if it’s going to reach them, it needs to reach them fast; and a bargain tends to matter more than a brand (unless the brand is tech or social).
As the millennials reach peak income and spending in the next five to seven years, and as the younger cohort enters the workforce and begins spending more than just their parents’ money, bear those themes in mind: tech and social integration rule over all; experiences matter more than stuff; if it’s going to reach them, it needs to reach them fast; and a bargain tends to matter more than a brand (unless the brand is tech or social).
Investment implications: The drivers of the global economy will soon no longer be Baby Boomers and Gen Xers. The millennials and Gen Z, the youngest cohort, are about to take over as the dominant consumers. Tech trends trickle up from younger to older users, so watch the youngest — the 0-to-18-year-olds — as a clue for what’s coming. What they tell us is that tech (i.e., connectivity) and social integration is the key to everything; that experiences matter more than accumulating more stuff; and that travel is their ultimate leisure goal. Most promising, even though they are a generation hit hard by more than a decade of slow growth and looking forward to a likely slow-growth future, they are optimistic — about their own life prospects and about their potential to have a beneficial impact on the world around them.
