How the pandemic shaped Gen Z's approach to saving and investing for retirement

Jason Dorsey, Gen Z Researcher and Author, joins Yahoo Finance Live to discuss how Gen Z and millennials are approaching retirement savings and finances emerging from the shocks of the pandemic.

Video Transcript

DAVE BRIGGS: Is there a generational gap when it comes to saving for the future? Well, study after study has, indeed, shown that, but it might not be exactly what you think. Let's talk about it with Jason Dorsey. He is a Gen Z researcher and the author of "Z Economy." Jason, good to have you on, my friend. So tell me--

JASON DORSEY: Thank you for having me.

DAVE BRIGGS: --how are Gen Z ers preparing for the future? Are they, indeed, putting away money for retirement?

JASON DORSEY: They are, and it's pretty shocking. When we talk about Gen Z, the oldest members are about 25 years old. And what our research shows in multiple studies is that Gen Z is actually saving money. They're trying to hold on to the money that they were going to spend. They'll even have a birthday party. Keep the money, and then ask their parents for money to go spend, which is pretty funny. The Gen Z, right now, 70% of them say that they need to be saving money today in order to be able to retire one day.

It's very, very shocking, particularly when you compare it to millennials, such as the stat you're showing. 45% of millennials are waiting to save for retirement. And the interesting thing is millennials and Gen Z are going to be set up very differently when it comes to retirement. The oldest millennials are now well into their early 40s. And many of them have delayed saving for retirement. They're delaying getting married, two income households. There's a lot that's happened with that generation, my generation, including crashing to the Great Recession and then COVID.

Gen Z's younger. They have more time ahead of them. And they're already saving. In fact, what we find, the number three thing they want in a job, which is very shocking, is employee benefits, specifically retirement matching. We actually are very optimistic about Gen Z being able to retire one day, much less optimistic about millennials being able to retire one day.

And in case you're curious about, do they think Social Security will be there, a majority of working age Gen Z do not believe that Social Security will exist for them in a form that will actually take care of their needs, which, again, speaks to why they're taking action now to save, invest, and think about these types of benefits.

DAVE BRIGGS: Jason, I'm guessing most said social media probably aren't even aware Social Security is even a thing. Did COVID change the way they view the future and view retirement?

JASON DORSEY: Absolutely. We've been leading annual studies on Gen Z since 2016, obviously well before the pandemic. And what happened with Gen Z in particular, our research showed that Gen Z was the number one generation to lose their job during the pandemic. And this is a big deal because as you may recall, so many people said, oh, it's the baby boomers. They're the ones that are going to lose their jobs. They're the oldest, all this stuff. And then absolutely did not happen.

We broke that news before the federal government did because with Gen Z, they were last hired, first fired. They had the least leverage or relationships in their work environment. They disproportionately worked in retail, hospitality, all of these industries, like food service, that had mass layoffs. So Gen Z was coming right into age, right into the workforce, and then they lost their jobs. So of course, it changed how they view work going forward, how they view savings, retirement, and so forth.

The fragility of employment became very, very real to them. In fact, we had more 20 somethings moved back home and lived back home than since the Great Depression, some would argue than during the Great Depression. So for Gen Z, they were already very practical with their money and their spending. We saw this in terms of their savings rate. We saw this in terms of how they looked at college loans and debt. We saw this in terms of them buying money-- or buying clothes at thrift stores. I mean, it was a very big thing for them prior to the pandemic. The pandemic accelerated it.

And what Gen Z also saw, and this, nobody is talking about, is, they saw their Gen X parents really struggle. They saw those Gen X parents who often now are taking care of their own parents well into their 70s, 80s, and older, really struggle financially, be pulled in multiple directions. And my favorite part, Gen Z tells us they saw what happened to the millennials, and they said we don't want to end up like those millennials.

So we think Gen Z very, very significantly impacted by the pandemic, and we're seeing those behaviors play out now in their savings rate, their spending rate, and the percentage of them investing for retirement. One thing I will call out that was unexpected is 41% of Gen Z now view cryptocurrency-- or investing in cryptocurrency as a safe investment. That's very different than pre-pandemic as well. Remember, lots of Gen Z ers were home. They're all learning about crypto. They were using checks if they received them to put into that. And so that did shift as well, in addition to just their predisposition to want to save and invest relative to other generations.

DAVE BRIGGS: That's a very interesting takeaway. Now we're talking about people born from 1997 to 2012. And they're entering a workforce in which there are 11 million open jobs. Are they savvy when it comes to shopping for that career opportunity? And I'm talking about 401(k)s, investment plans, matching, and the like?

JASON DORSEY: Yeah, oh, that's such a brilliant question. You know, what we saw in the year over year change is that the number one thing-- the number one thing that changed sort of pre-pandemic, during pandemic, and then now where we are today, the number one thing that changed was the increase in expectation of starting salary. It's pretty wild because in the study, what we found is it actually doubled. So in our state of Gen Z study, what was number one before, which was starting salary, doubled in importance, and everything else generally stayed the same. So what you saw was they go, oh, well, if I'm really valuable, you need to pay for that.

And sometimes people think, oh, well, Gen Z just is trying to hold out for more money. There's also peer pressure that if you're not getting paid top dollar, you're really not valuing yourself. You're being taken advantage of, which people aren't talking about. And it's a big deal. So we think about Gen Z, yes, the pandemic has affected how they're thinking about money, how they're thinking about benefits. By the way, non-traditional benefits, too, one of their top ones, pet insurance, because they all got those pandemic puppies. I know I did. [LAUGHS] So we saw that happen, in addition to scheduling flexibility. So yeah, it's a very exciting time to study Gen Z like we do.

DAVE BRIGGS: Never had pet insurance. Love my dog, love my cat, never had that. A study out today shows 25% of Gen Zers expect to retire at 55-- quite frankly, an unrealistic number. Do they have a sense of what it takes to retire at 55?

JASON DORSEY: Candid answer is no. When we talk to them mathematically, not about savings like, oh, my goal is to have a million dollars or $2 million, what have you. Where it sort of falls down or breaks apart is they don't understand how much money they need to live on in the future. Maybe none of us do, given where inflation is. But what we're seeing is when we ask them how much money do you think you'll need to have generating in terms of income in the future, they tend to guess very low relative to what they're very likely to need. So many of them still aren't saving enough.

Interestingly, in our State of Gen Z study, we found that 26% of Gen Z already has $1,000 saved in an emergency account. So they're putting that away for emergencies, which we think is very positive. But if you look long term right now, if Gen Z does not have these government safety nets in the future, which they don't believe that they will-- I don't know what will happen there. I don't have a crystal ball.

But Gen Z doesn't believe it. But if Gen Z continues to save at the rates that they are, they're going to be better positioned. What we're really interesting to see is, what about student loan debt? They claim they want to graduate with less student loan debt.

And they tell us they're more thoughtful when they think about housing costs. You know, will they ultimately buy a car? Should they be renters? Is it OK to live longer with your parents and save money? Part of the debate there is they say that, but then maybe they don't save as much money. They just spend what they would have on rent. So it's more complex than a simple answer.

But we are seeing is even though they are saving at a better rate than they thought, the reality of them being able to retire at 55 is probably pretty low. However, I would say it's much more likely than for many millennials, who are very far behind the curveball, if you will, in terms of how much they need to be able to save in order to be able to retire in 15 or so years. They're way worse off than Gen Z is right now.

DAVE BRIGGS: Mm-hmm, they're entering a very friendly job market in a very hostile housing market. Jason Dorsey, the author of "Z Economy," great to have you on. Really interesting takeaways, man. Thank you.