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Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
[Chris Hyzy speaking]
They're now the world's largest generation and the first with no memory of an offline world. They're young, powerful and different from their older Millennial cousins. If you haven't given "Generation Z" much thought as an investor, it may be time to start. Because Gen Z is rapidly reshaping the world.
[Haim Israel's headshot appears over his name and title.]
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Haim Israel
Head of Global Thematic Investing
BofA Global Research
[Chris Hyzy speaking]
Joining me is Haim Israel, head of Global Thematic Investing for BofA Global Research, who has been closely following this remarkable generation for the past several years. We'll look at Gen Z's growing social and financial influence and what it means for the future of work, the markets, business and society.
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On-screen disclosure:
Please read important information at the end of this program. Recorded on 5/29/2024.
[Chris Hyzy speaking]
Haim, thanks for joining me today.
[Haim Israel speaking]
Pleasure, Chris, thank you very much.
[Chris Hyzy speaking]
Let's talk Gen Z. Can you let us know the definition of Generation Z?
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Haim Israel
Head of Global Thematic Investing
BofA Global Research
[Haim Israel speaking]
Sure. So, Gen Z they were born between 1996 to 2016. So now, they're the mid-20s, give or take on average. Why 1996? Usually, we define a generation because of an event that happened slightly after they were born, that changed their entire life. For Gen Z, it was the internet revolution. Because this is the first generation that was born into an online world. They never, ever experienced an offline moment in their lifetime. That's why they are so different. They're in front of screens all the time, they're in front of the smartphone all the time, that was the reality they were born into. Nothing like we've ever seen in history.
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[Chris Hyzy speaking]
Most of Generation Z, as you've said, are teenage years into their 20s. And so, what's the power of Generation Z as we move forward in the next 10 years? Is it spending? Are they driving change in society in general from an economics perspective?
[Haim Israel speaking]
So now, when we looked in our research across Gen Zs all over the world, they own seven trillion dollars of total assets. That's not a lot of money if you look across all assets all over the world.
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In 10 years or so, Gen Z should reach $30 trillion in assets.
Source: BofA Global Research
[Haim Israel speaking]
By give or take 10 years, they're going to be the richest generation out there. Why? First of all, they're getting jobs, they're getting into the real economy, so, they're starting to accumulate assets. Second point, a theme that we talked about for many times, the transfer of wealth from the older generation to the younger generation. They are getting their fair shares. So, in 10 years' time, Chris, this is going to be the richest generation out there. And they think differently, act differently, consume differently, work differently, and will have more money. They will start impacting everything. So, an industry that does not factor Gen Z today is just not going to be around.
[Chris Hyzy speaking]
When we often talk about different cohorts, we always look to see what's the change from the previous one.
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Gen Z is much different than the prior generation:
- Spend less
- Take on less debt
- Fewer pursue university degrees
[Haim Israel speaking]
When we look at the pattern of behavior of Gen Z, a lot of them are very different from the older generation. First of all, they're spending less. They want to live here and now. A lot of their behavior is, 'How do I experience more over the internet here and now, meaning, I'm taking less debt. I'm taking less mortgages. I'm not going to do anything that's going to cap my existence here and now. Why do I need to have larger homes and so on, and just leveraging everything out to do that?'
Another fascinating trend that we've seen with them — they are not going to universities. It's very expensive, very expensive. So, Gen Z got it at one point, 'Am I going to spend four years in universities learning doctrines which may be were relevant in the 18th century?' 'And then spend the next 20 years of my life paying for that? No. There are still people that are enrolling to universities, especially, Ivy Leagues. But what we've seen all over the world is that there's a big decline in enrollment to universities.
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Gen Z will likely get married and leave home later, have smaller families and own less real estate.
So, they will get married later. They will leave home slightly later. They will have smaller families. They will have less real estate. They will accumulate more assets. They are into fast fashion. They're into online. They are very smart consumers.
[Chris Hyzy speaking]
Any big differences from the previous generation to Gen Z because they grew up with the smartphone and the internet?
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For Gen Z, 'If it's not on my phone, it does not exist.'
[Haim Israel speaking]
So, first of all, consumer side. More than 80 percent of the shopping experiences is going to start online. If they can't find it online, the delivery is too late, or just too expensive, they will go down to the shopping mall. Huge impact, not just on consumer, but think about what the impact on logistics, what the impact on real estate, on commercial real estate, that's massive. Let's think about the banking industry. So, they are not using cash. They are not using credit cards. They do use payment apps. 'If it's not on my phone, it does not exist.'
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While Gen Z consumes less debt, they are open to more complicated financial products.
[Haim Israel speaking]
I always talk about that they are consuming less debt, but they actually do consume much more complicated products, algo trading, robo-advising, all this stuff they're actually a big consumers of. Remember, they were shaping in the time of zero rates. So, they are used to trade. They are familiar with the capital market. So, that's quite important. But they will not walk into a bank branch. They don't understand this concept of going up into a branch. Think about the restaurant industry.
So, Gen Z does not go to enjoy his food. He goes to take picture of the food. So, one of the fascinating stats that I've saw that restaurants in New York, which used to change on average their menus every six months, now, turn it into four months.
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Gen Z value experiences over assets and are lured by the attraction of the exotic.
They want the experience economy. I don't want to go see the Empire State Building. I don't want to see the Eiffel Tower. No, it's all over Instagram. I want to go to exotic places.' So, a fascinating example, the cruise line industry, which used to be the baby boomer industry, like overnight went to be the Gen Z industry. Everybody wants, 'I want to go to those exotic places and take really cool pictures.'
The other two things that I want to mention, Chris, is that from a social perspective, they are less sociable and we've seen that. So no, 'I have more and more friends online and that actually makes me a citizen of the world because I'm interacting with everybody online.' But personal relationship, that is something that we've seen less with other generations. And that's why I'm a big believer that if you do have social skills, that's going to be a huge advantage for you in the future.
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Gen Z is expected to frequently change jobs, have three or four careers, and retire in their 80s.
[Haim Israel speaking]
And the last thing, just to talk about the job market. I'm a big believer in longevity. I'm a big believer that life expectancy is about to jump. They will retire their 80s. They will have three to four careers. They will change jobs every couple of years. They are into the experience economy, meaning that how much you're getting paid is not necessarily your number one criteria.
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For Gen Z, the culture of an organization is the number one employment criteria.
[Haim Israel speaking]
Actually, according to our research, culture of organization is the number one criteria. They're going to move between jobs, between careers, between different paths. They are not obligated to, as we were, to have the same career for the next, I don't know, how many years.
[Chris Hyzy speaking]
Would you consider Gen Z and the size and ultimately, wealth they will control, would you consider that one of the great growth spigots in the world?
[Haim Israel speaking]
I do. They are citizens of the world. They are big believers in a lot of the values that we've seen, social justice and environmental things and so on. Now, at the same time, they are accumulating more and more wealth. When people are hiring Gen Zs, they are being interviewed. They are not interviewing. And that goes down to the value that Gen Z believes in.
[Chris Hyzy speaking]
Haim, I want to thank you for joining me today.
[Haim Israel speaking]
Thank you very much for your time, Chris.
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[Chris Hyzy speaking]
I hope you've enjoyed this conversation. If you work with an advisor, ask them how these important demographic changes could affect your long-term investment strategy, and what potential opportunities you might explore as part of a balanced, diversified portfolio.
Thank you for watching, and I hope you'll join us again soon for more conversations about the events and forces shaping the markets and the economy.
On-screen disclaimers:
Important Disclosures
The opinions expressed are as of 5/29/2024 and are subject to change.
Investing involves risk, including the possible loss of principal.
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