Young people are embracing a 'soft saving' trend, which means they are not retiring.

Younger workers are increasingly adopting a "soft saving" approach, which challenges the traditional notion of working hard, saving money, and retiring early.

Saving softly means allocating more money for the present and less for the future.

The Prosperity Index Study by Intuit reveals that Generation Z, who prioritizes experiences over money, is driving the soft saving movement. According to the report, "soft saving is the soft life's answer to finances."

A lifestyle that prioritizes comfort, low stress, personal growth, and mental wellness is referred to as a "soft life."

Gen Z's approach to investing and personal finance was found to be "softer" by the report.

Younger investors often invest in causes that align with their personal beliefs.

Liz Koehler, head of advisor engagement for BlackRock's U.S. Wealth Advisory business, stated that clients also seek emotional connection with brands and professionals they choose to engage with, according to CNBC.

Are people saving less?

Younger workers have a desire to break free from restrictive financial constraints.

According to the Intuit report, three out of four Gen Z individuals prioritize a higher quality of life over having more money in their bank accounts.

Personal saving rates among Americans today appear to reflect the soft savings trend.

In 2023, Americans are saving less than they did in the past decade, with the personal saving rate dropping to 3.9% in August, compared to the average of 8.51% over the past decade, according to data from Trading Economics.

The rebound from the Covid-19 pandemic is one of the reasons for a decrease in personal savings, according to Ryan Viktorin, vice president and financial consultant at Fidelity Investments.

During the pandemic, Americans spent significantly less, so people are more likely to spend a lot more now to make up for lost time, she told CNBC.

Inflation makes it more challenging for individuals to meet their financial obligations or accumulate savings, according to Koehler.

Financial goals among workers have shifted, resulting in a decline in personal saving rates.

With the increasing number of young people entering the workforce, they tend to prioritize their finances differently and are more likely to strike a balance between saving money and enjoying life, according to Viktorin.

Retiring and savings

While retirement is often viewed as the culmination of a worker's career, an increasing number of individuals are worried about not being able to retire at all.

In 2023, only 53% of workers believe they will be able to achieve their desired retirement lifestyle, according to a report by Blackrock. Some of the reasons cited for this lack of confidence include concerns about retirement income, market volatility, and high inflation.

A majority of Gen Z workers are uncertain about their ability to retire with enough money.

The report by Intuit revealed that while this fear may not be a significant concern for the younger generation, as most are not looking to retire early, and some don't want to retire at all.

Nearly half of the working population plans to continue working beyond the age of 65 or has no retirement plans, according to a study by the Transamerican Center for Retirement Studies.

Between generations, the definition of retirement is changing, and it no longer necessarily means leaving the workforce permanently.

Those aged 27 to 42, specifically Gen Z and millennials, are more likely to desire paid work during retirement.

According to a report by the Transamerican Center for Retirement Studies, more than 31% of Gen X (born between 1965 to 1980) and 21% of Baby Boomers (born between 1946 to 1964) surveyed have a retirement savings rate that is higher.

Perhaps, the growing preference for a continuous income may render the concept of "retirement" irrelevant.

Despite not planning to retire, young workers still strive to increase their retirement funds.

The 401(k) retirement savings plan, which offers tax benefits to American employers, still has millennials and Gen Z as significant beneficiaries, according to Fidelity's second quarter retirement analysis.

In the second quarter of last year, Gen Z and millennials experienced a significant increase in their average 401(k) balances. Gen Z experienced a 66% increase, while millennials saw a 24.5% increase.

What are people spending more on?

What is the destination of people's money as they spend more and save less?

According to a study by Intuit, millennials and Gen Z are more likely to prioritize spending on hobbies and non-essential purchases compared to Gen X and boomers.

Millennials and Gen Z are more likely to prioritize having money to pursue their passions or hobbies than previous generations, with 47% and 40% respectively, compared to 32% of Gen X and 20% of boomers.

The younger generation is prioritizing non-essential experiences such as travel and entertainment, according to experts.

In 2022, the percentage of Gen Z's spending on entertainment at investment management firm Vanguard increased to 4.4%, compared to 3.3% in 2019.

Americans are "re-focused" on post-pandemic travel, which may be contributing to a decrease in personal saving rates, according to Fidelity's Viktorin.

Despite the fact that the younger generation is saving less, they are not necessarily living paycheck to paycheck.

Reed observed that Gen Z seems to be managing their finances carefully, and their increased spending is likely due to the rising cost of necessities rather than a desire for luxury goods.

"While spending money on things that bring happiness is beneficial, it's important to prioritize meeting immediate needs and staying focused on long-term goals before indulging in unnecessary spending," he emphasized.

The Intuit report has been updated to accurately reflect that younger workers are not looking to retire early, and some don't want to retire at all. An earlier version of the story misstated it.