Jason Dorsey started tracking Generation Z about five years ago when he founded the Center for Generational Kinetics, a research firm devoted to "separating generational myth from truth."

At the time, the oldest Gen Zers were fresh out of their teens, making their financial habits hard to measure. Now they're entering the workforce and investing their money for the first time, and while their overall impact on financial markets is currently small, researchers like Dorsey are beginning to see a common thread: a generation eager to invest but averse to risk.  

"What we've been watching early on is that Gen Z is much more conservative in general with their spending and debt than previous generations, particularly millennials," said Dorsey, who started his career helping businesses understand his own much-debated millennial generation. 

At the same time, Gen Z is entering a very different environment than its predecessors. Meeting with a financial advisor is no longer a prerequisite, and many are taking advantage of new digital platforms to dip their toes into investing, even if, for now, they're sticking to lower-stakes, small-dollar investments. 

Born approximately between 1995 and 2005, older Gen Zers' formative years bridge the gap between the Great Recession and the coronavirus pandemic, and early data suggests the latter crisis has been particularly hard on them. A Pew Research Center study released in March found that half of those ages 18 to 23 reported that they or someone in their household had lost a job or taken a pay cut due to the outbreak, compared to 40 percent for millennials, 36 percent for Gen Xers, and 25 percent for Baby Boomers. 

What this means for the generation is hard to tell in the short-term. A more complete picture of Gen Z's economic impact and financial preferences is likely still years away, but in the interim their presence is already being felt across the investment world. 

The Gen Z Mindset

Gen Z's financial habits didn't come out of nowhere. Dorsey said it's the result of their unique generational experience. 

"While Gen Z did not go through the Great Recession in the workforce or as adults, they saw their parents really struggle," he said. "So that hit them at a very important age where it made them more practical with their money. That's important because it plays into how they think about investing."

There is already evidence that Gen Z is prioritizing financial security and retirement planning. One study conducted by Dorsey's firm two years ago found that 12 percent of Gen Z is already saving for retirement, a significant percentage considering most were still teens or just starting their careers.

"Until they've met some of their savings goals, they're not comfortable with investing, and if they are investing, it needs to be automatic through their employer or it needs to be low-dollar," Dorsey said. 

In recent months, COVID-19 has hampered some of these plans. A study from E*TRADE found that 59 percent of both millennials and Gen Zers have made early withdrawals from their retirement accounts in the second quarter of 2020, compared to 33 percent of the overall population. This is a tough decision for a generation in which most believe that other safety nets such as Social Security will not be available to them, according to Dorsey.  

While Gen Z may have learned some of these financial lessons on their own, some have noticed that parents and grandparents are encouraging them to invest early and often. 

"One thing that I see for sure is the older generation — most of the time it would be their grandparents — trying to get that generation to follow in their footsteps in doing things like saving and investing," Chuck Pettid, CEO of the Republic Crowdfunding Portal, which connects investors with tech startups. "I've seen that interaction at investor events. They'll bring them along. They'll try to teach them what they're up to, what they should be looking into. They're trying to get them in the door."

When it comes to private investment, Pettid pointed out that roughly three-quarters of Gen Z is still legally prohibited, if you count 1995 as their earliest birth date. Looking at his own platform, that cohort makes up about 1 percent of investors. Still, Republic is taking steps now to accommodate their interests.

The Gen Z Investor

In April, Republic acquired Fig, a crowdfunding platform for video games, in an effort to capture more Millennial and Gen Z investors on their own terms. 

"For video games, specifically, and Generation Z, that's something that they are familiar with," Pettid said. "They understand what's good and bad, what's viable and isn't viable."

He added that Republic is also seeing increased interest in app-based companies, gig economy startups, and fintech, all industries that Gen Z has a direct relationship with either as consumers, employees, or users. Investment platforms such as Robinhood and Acorns have provided an access point for Gen Zers looking to put their money behind companies they support. 

"They like to dabble," Pettid said. "They are very comfortable with gamification and quick results and micro investments."

This kind of first-hand experience is especially important to Gen Z when it comes to giving up their hard-earned money. 

Chris Lustrino, the founder of KingsCrowd, a sort of rating system for online investment opportunities, noticed a real selectiveness among younger investors who reach out to him. 

"They want to invest in things with social impact," he said. "They want to invest in things around cleantech. They want to invest in female founders and minority founders. They are much more socially driven in their investing. They don't necessarily have a lot of money now, but they are going to run into a lot of money over the coming decades."

The lack of money, for the moment at least, is one barrier to Gen Z supporting startups in particular, which still require income minimums and SEC accreditation to individually support. 

"The barriers are mostly created from a legal standpoint and an access standpoint," said Henry Yoshida, founder of Rocket Dollar and a veteran in the private investment world. "Not a lot of them have had time to accumulate assets to become an accredited investor, which is the main barrier to startup investing directly."

The Obama-era JOBS Act cleared some of these obstacles and made self-directed investing platforms such as Rocket Dollar possible, but you still need a million-dollar net worth, exclusive of your primary residence, or $200,000 in income for the last two years to become an accredited private investor. 

"It's sort of arbitrarily set right now," Yoshida said. 

He pointed out that as recently as the fourth quarter of 2019, SEC Chairman Jay Clayton expressed support for further "modernizing" private equity regulations, as well as making the case that young people should be encouraged to invest earlier.  

"We need to do a better job educating our population earlier about the importance of personal financial management, particularly where financial management is not learned at home," Clayton said during a speech in Philadelphia. 

Overall, Yoshida is hopeful about Gen Z's prospects. He said their increased access to information and technology gives them an edge, which in time could turn into a real economic advantage. 

"People may have this misguided belief that Gen Z is not responsible, but given the circumstances of the world around them and the access to information in the form of the global internet, they are very much empowered and knowledgeable," Yoshida said.  "I think they are going to end up being a very powerful economic generation."

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Gen Z: Eager to Invest but Averse to Risk
A complete picture of Gen Z's economic impact and financial preferences is likely still years away, but in the interim their presence is already being felt across the investment world.
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