Generation Z will be one of the most affluent as well as one of the most disruptive population groups in history, according to Bank of America.
Born between 1996 and 2016, Generation Z is different from the Millennial generation that preceded it – those born between 1981 and 1995 – ignorant of life without Google and having grown up in the aftermath of the global financial crisis.
“The Gen Z revolution is starting, as the first generation born into an online world is now entering the workforce and compelling other generations to adapt to them, not vice versa,” the bank noted.
“Thus, about to become most disruptive to economies, markets and social systems.”
Coming of age at a time of greater social rights for the LGTBQ+ community and movements such as #metoo, Gen Z has already experienced the brunt of the pandemic as it entered the workforce.
“These experiences have shaped Gen Z to be a very different generation from Millennials,” said Bank of America.
“We think financial markets often underestimate these differences, assuming Gen Z to be the same as their predecessors, missing the distinctions that help understand the changing new consumer.”
Gen Z already has $7trn in income which is set to grow to $17trn over the next five years and rise to $33trn by 2030, overtaking Millennials – born between 1981 and 1995 – by the early 2030s.
The influence of Gen Z is likely to grow further with the ‘Great Wealth Transfer’ from the Baby Boomer and Silent generations – born between 1946 and 1964, and 1928 and 1945, respectively.
It is clear, said the bank, that Baby Boomers have accumulated “unprecedented volumes of wealth that have not yet started to be transferred”. A lot of this is likely to find its way into the bank accounts of Gen Z.
“The growing consumer power of Gen Z will be even more powerful, taking into account the 'Great Wealth Transfer' down the generations,” the bank noted. “The Baby Boomer and Silent generations are sitting on $78trn of wealth in the US alone today.”
And the way that Gen Z shops will also be different, with a greater preference for payment by phone and choosing quality over price as the top purchase factor.
E-commerce is likely to be a key beneficiary of the spending power of Gen Z as the group eschews traditional shopping malls and bricks & mortar retailers. The communications sector will also benefit as Gen Z is constantly online, fuelling demand for new media & entertainment and technology platforms, including social media.
However, this all requires technology which will both facilitate and benefit from the rise of Gen Z.
The travel sector – including flights, autos and hotels – may suffer as the generation becomes more aware of the environmental impact of travelling and becomes more used to working from home.
In terms of consumer discretionary, luxury goods may benefit as social media is ‘always on’, while the bank also expects pet ownership to surge among what has been dubbed the loneliest generation.
In consumer staples, the picture is more mixed.
Health & hygiene products are likely to see some uplift as self-care overtakes cosmetics. And in food, plant-based alternatives have become a rising focus for Gen Zers, as has food delivery during the Covid lockdowns.
Conversely, alcohol and tobacco are likely to be negatively affected, with more than half of drinking-age Gen Zers not consuming alcohol and being discouraged from smoking.
And where are the largest Gen Z markets to be found?
The US and China have the largest cohorts by income at $1.2trn and $1.1trn respectively, followed by India, Japan, Germany, the UK and France.
The largest proportion of Gen Zers is to be found in emerging markets, where 89 per cent live, according to the bank, as developed markets suffer from ‘peak youth’.
“Europe is the first continent to have more over-65s than under-15s, a club North America will join in 2022,” it noted. “In contrast, India stands out as the Gen Z country, accounting for 20 per cent of the global generation, with improved youth literacy rates, urbanisation and rapid expansion of technological infrastructure.
“Mexico, the Philippines and Thailand are just a few of the emerging market countries that we think have what it takes to capitalise on the Gen Z revolution.”
But who will come after Gen Z?
The bank has christened the generation that follows Gen Z – born after 2017 – as ‘Generation Covid’ or ‘Gen C’ – which will not remember the virus or its lockdowns.
“It is the generation that will have only ever known problem-solving through fiscal stimulus and free government money potentially paving the way for universal basic income and healthcare access,” it noted.
“This generation will feel the impact of Covid long after the pandemic ends in terms of how it trusts and shows intimacy – being trained not to hug, shake hands or even play in groups.
“Virtual attendance will be as accepted as in-person attendance for all activities, from classrooms, to talent shows, and even family reunions.”