How America’s Newest Adults are Changing Banking

Believe it or not, Generation Z is already dipping their toes into the banking world. Are banks ready?

With the oldest Gen Z members reaching their mid-20s, America’s newest adults are starting to generate their own forms of income, graduate from college, budget for large financial decisions and even learn the basics of money management from their favorite TikTok creators. Banks must prepare for this mass generational shift in wealth and personal financing.

For years, financial institutions have adjusted their core offerings to accommodate millennials’ financial preferences and patterns in spending behavior. These 73-million-strong tech-savvy adults have become the most populous generation in U.S. history, surpassing baby boomers.

Entering the job market during the Great Recession, which forced millennials to make more risk-averse spending decisions. With the exception of outstanding student loans, many avoid debt and prioritize spending on life experiences over material possessions to avoid regretting financial decisions down the line.

Millennials are now the largest driver of net new loan demand, according to Morgan Stanley loan forecasts and historical household information. This lending “sweet spot” falls between the ages of 25 and 40, and could persist for to a decade. But seemingly unbeknownst to the majority of banks, Gen Z is nearing – and entering – their early 20s.

It is time for banks to update their reality: America’s youngest adults – Gen Z – are about to age into that lending sweet spot. Combined, millennials and Gen Z will reach the largest generational demographic in the country: 140 million adults whose loyalty to existing financial institutions is very much in flux. This wealth shift will undoubtedly be the impetus for an industry-wise reimaging of consumer banking and lending.

Reports from Morgan Stanley’s population forecasts suggest that Gen Z will comprise of the most populous American generation ever by 2034, with an estimated peak of 78 million. By that time, this generation of “kids” are expected to have increased their aggregated borrowing levels, eventually accounting for a third of all consumer debt in the U.S.

Still thinking of them as kids? It’s understandable, but they could set the tone for how the entire banking industry evolves in the coming years – including your company. When it comes to generational and demographic shifts, there is no recipe for success, especially in banking. However, the tools needed to survive are readily available for the banks that are willing to seize them.

At a bare minimum, banks will need to redesign their legacy systems and offerings by adding digital enhancements, similar to the industry-wide digitization brought on by millennials in recent years. Though the behavioral characteristics of millennials and Gen Z overlap, don’t make the mistake of thinking that they are the same teams playing the same game.

Some Gen Zers are given a smartphone before they are even the age of 10, according to The Harris Poll. Furthermore, those children are allowed to create their own social media accounts by the age of 13, oftentimes earlier. During these formative years, Gen Z kids begin to develop their own personalities, live their own lives and form digital relationships with people, communities and brands alike.

Why does this matter? Because banks have relegated themselves to the adult world, where you must be 18 or older to open your own account. They are losing out on the most influential years of America’s youngest adults – when they begin to associate with their favorite brands and subsequently spend money to engage with them.

The same digitized offerings that banks have spent years formulating for millennials are simply not going to cut it for Gen Z. Banks will need to redefine the concept of “traditional” banking and create a “neo-normal” standard if they have any hopes of engaging this massively influential generation of young Americans. Don’t simply market differently to them. It’s time to shift the strategy – design differently for them.

Gen Z isn’t just about TikTok dance challenges and viral memes. Most of them were seeking answers to their curiosities via search engines around the same age we were reading “Curious George.” This generation is the most diverse and well educated to date, and they are very keen on being treated like adults – especially when it comes to managing their personal finances. How does your bank plan to greet them?