Gen Z Market Predictions: The Problem that Many Companies Don’t See Coming, and the Opportunity for the Ones that Do

Author: Abby Copeland, Graphics: Nina Tagliabue

The BRB Bottomline

As Gen Z becomes older and expands their net worth, they are shifting away from institutional markets and pouring capital into more unorthodox ventures. In this article, investing columnist Abby Copeland will explore the positive and negative effects that Gen Z will have on the stock market and what companies can learn from this.

Understanding Gen Z

Who is Gen Z?

Generation Z, or Gen Z for short, is the term used to refer to the individuals roughly born between 1997-2012. Considered “digital natives,” Gen Z is the first generation that does not remember a world without technology or the internet. As a result, they are heavily involved in social media. Researchers consider defining events for Gen Z to include: 9/11, the Great Recession, the Covid-19 Pandemic, and increasing political polarization. Gen Z is on track to be the most educated, diverse, and progressive generation to date. Despite the record-breaking nature of this generation, Gen Z still struggles with unique issues. According to the Deloitte Global 2021 Millenial and Gen Z Survey, Gen Z, along with Millenials, are more likely than other generations to struggle with mental health issues. In addition, both groups feel an urgency to fight issues such as income inequality, systemic racism, and climate change. Given the characteristic nature of this generation, it is no surprise that Gen Z has distinctive economic and business behaviors that could have a profound impact on the stock market, which will be discussed below.

What Are Gen Z’s Business, Economic, and Financial Behaviors?

Gen Z is also significantly impacted by growing up through two different recessions. Many members of this generation watched their parents struggle through the Great Recession. Years after the conclusion of the Great Recession, Gen Z is witnessing similar impacts of the Covid-19 Recession. As a result, Gen Z is relatively conservative with their money. Preliminary research indicates that Gen Z has already taken financial initiatives to avoid a repeat of the struggles they witnessed during both recessions. 

However, while Gen Z takes a frugal approach to finance, they emphasize an emotional approach to consumerism. Gen Z has a strong sense of truth and morals as it relates to business and is quick to support anything they perceive as an ethical brand, such as Ulta. Gen Z also has a tremendous social media presence, which can be a double-edged sword for businesses. On the one hand, social media serves as a platform that positively influences Gen Z’s opinions and frequently informs their buying decisions. However, Gen Z are firm believers in brand activism, and social media can easily serve as a tool to “cancel”  a company in the wrong. For example, an article from Forbes noted how Ben and Jerry’s brand activism exemplifies Gen Z’s preferences towards branding and social justice.

As a result, it can be reasonably inferred that Gen Z will spend money on brands with which they politically align. Furthermore, social media serves as a platform that dictates consumer behavior. When it comes to trends, there is admittedly a large amount of groupthink due to social media. According to an article by Forbes, “97% of Gen Z consumers say they use social media as their top source of shopping inspiration.” Although not all of Gen Z has become financially independent, they hold up to $143 billion in spending power and largely influence their families’ financial decisions, who may belong to multiple generations. Thus, it is very important for businesses to learn how to cater to their unique needs.

The State of the Stock Market Right Now

The US stock market is in its longest bull run in history. Although the overall trend of the market is positive, there is no guarantee that the bull run will last. Despite there being no clear consensus about what is currently happening in the market, some experts believe the market is highly overvalued. Basic logic would lead most investors to believe that the market cannot continue to make gains and will eventually hit a downturn. 

When analyzing the demographic of most American shareholders, they are overwhelmingly male, white, and of an older age. According to a report by the ​​FINRA Investor Education Foundation, 73% of households that own securities investments through taxable accounts are white. The same survey finds that the mean age associated with these taxable accounts is 51. Furthermore, a survey conducted by S&P Global reports that only 26% of American women have money in the stock market. While these demographics continue to support specific stocks, they will gradually be phased out by younger investors who have drastically different ideas. However, as these traditional stocks lose their investor base as older individuals exit the market, Gen Z investors may well decide to put their money in more unorthodox ventures. As a result, the overall market health could face a period of instability in the near future. 

The Discrepancy Between Gen Z and the Stock Market and a Potential Crash

As Gen Z becomes financially independent and enters the stock market, the discrepancy between Gen Z’s ideals and the stock market will continue to be revealed. Wall Street has already received warning signs about the non-traditional investing preferences Gen Z holds. For example, Wall Street was taken aback by the 2021 GameStop short squeeze, and Reddit backed amateur day trading. An overwhelming amount of these day traders belong to Gen Z and almost crashed the stock market. After this frenzy, Wall Street seemingly ignored the warning signs and continued to advocate for investment in more institutional markets. 

While Gen Z champions ethics, diversity, and political activism, these ideals are not necessarily represented among current shareholders or the stocks that they choose. Eventually, as Gen Z looks for companies to pour their money into, they may not find a large number of corporations that represent their ideals. This lack of economic stimulus could possibly lead to a market downturn unless companies learn how to prepare themselves for Gen Z. 

The Upside for Companies Who Understand Gen Z

Gen Z already holds over $143 billion in purchasing power, but their purchasing power will continue to increase in the foreseeable future as they become financially independent. A report from the Bank of America notes that Gen Z’s income is expected to reach $33 trillion by the early 2030s. Because of Gen Z’s social media presence, they are hyperconnected. If they support a product or a business, they will be quick to advertise this on social media, where the effects of grassroots marketing are immeasurable. For example, products that were once popular years ago can blow up overnight due to a viral TikTok. Gen Z’s immense social media presence and subsequent social commentary can catalyze companies’ sales in ways that have never been witnessed before. With this in mind, Gen Z’s impressive purchasing power and expected future earnings can not only lead to increased sales that will drive up the stocks of public companies but can provide insight into the capital that Gen Z consumers can invest in worthy stocks.

How Can Public Companies Prepare Their Stocks for Gen Z?

There are a number of measures public companies can take to prepare their stocks for Gen Z investment and companies for Gen Z consumerism. To many executives, Gen Z may seem like a foreign age group. However, when companies put in the time and effort to prepare their stocks for Gen Z, they are sure to reap the benefits. The following are basic steps a company can take to prepare their stock for Gen Z and deliver value to their new shareholders.

Making Diversity and Inclusion a Top Priority

To Gen Z, diversity and inclusion is extremely important. Companies that are not already champions of diversity and inclusion need to start immediately. Gen Z is the most diverse generation thus far, so they need to see themselves represented in business spheres. Not only do they need to see themselves represented in the company culture and internal affairs, but in marketing as well. As discussed previously, Gen Z will not support a brand that does not align with its values, so this is especially pertinent when it comes to diversity and inclusion. Companies also need to know that cancel culture, which is frequently tied with political matters, has the ability to ruin a company that is perceived as not being inclusive.

Increasing and Targeting Social Media Presence

In addition, companies should increase their social media presence to attract Gen Z consumers and manage their stock accordingly. In a largely digital world, Gen Z searches for authenticity and personal connection through social media. Not only should companies be on social media and implement sponsorship to increase grassroots marketing, but they should aim for relatability on social media. For example, Wendy’s frequently jokes about their competitors’ demerits on Twitter. This type of humor makes large corporations feel relatable to Gen Z consumers.

Improving Internal Company Culture and Making Efforts to Give Back to Social Causes

Company culture and philanthropic endeavors are also very important to Gen Z. These measures are not only likely to attract more employees but improve public perception of the company as well. Gen Z values ethics and sustainability, so if companies make an effort to give back to these social causes, it will pay off in the long run. For example, Chipotle recently decided to raise their average wage to 15 dollars an hour. Some analysts believe this further drove up Chipotle’s stock price. Another notable example is Dan Price, the CEO of Gravity Payments. He decided to cut his pay by a million dollars to raise each employee’s salary. As a result, the company turnover was cut by 50%. In an article by TODAY, Price remarked about taking a pay cut, “It’s not about making money; It’s about making a difference.” This mentality regarding improving internal company culture is a prime example of simple measures that win approval with Gen Z. 

Considering a Stock Split

Companies with highly valued stocks may also consider a stock split to appeal to Gen Z investors. For example, Apple recently underwent a 4-for-1 stock split that took their highly valued stock to a more accessible price point without diluting the value. For Gen Z investors who are still expanding their net worth, a more affordable stock bought in mass volumes could bring tremendous gains to companies. This is because increased accessibility to the stock allows lower net worth individuals to enter at a feasible price point. In 2020, Jim Cramer noted that Apple’s 4-for-1 stock split and Tesla’s 5-for-1 stock split are good for the market because it appeals to younger investors.

Take-Home Points

  • Gen Z has unique business, economic, and financial behaviors that impact the businesses that cater to them.
  • The stock market is overvalued and will be negatively impacted as old investors get phased out by Gen Z investors.
  • The discrepancies between what Gen Z believes and traditional investors believe will cause an eventual stock market crash. 
  • Companies that understand Gen Z have an opportunity to make profits and stock gains.
  • There are multiple ways for public companies to prepare their stocks for Gen Z, such as making diversity and inclusion a top priority, increasing their social media presence, improving internal company culture and giving back to social causes, and considering a stock split, to name a few.

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