"Sorry Millennials, your time in the limelight is over."
That's the conclusion of a new report from Barclays analyst Hiral Patel, who writes that it's time for the Millennials to make way for the new kids on the block – Generation Z – a generational cohort born between 1995 and 2009, and already larger in size than the Millennials (1980-1994).
According to Barclays, the current fixation with Millennials makes them the most studied generation, which in turn has caused the use of this term to simplify to a label for anyone that may be young today; however the irony here is that Millennials are not necessarily young anymore and we run the risk of overlooking the next cohort – Generation Z – who are now coming of age.
Citing survey-based research from a range of sources, Barclays suggests that there are fundamental differences separating Generation Z from the Millennials (Figure 1), material enough for marketplaces to take note today.
And yet, even as Generation Z enter their prime, many companies have yet to prepare for their arrival.
We fear they are either still trying to adapt their business models to the Millennials or hoping simply to re-use whatever strategies they’ve developed for Millennials on Generation Z. We argue that adopting such a homogenous approach will deliver unsuccessful results as it fails to identify the two generational cohorts as different.
The reason for the Barclays report is to asset that this "coming of age" is worth capitalising on now, with Generation Z in the US already having $200bn in direct buying power and $1tn in indirect spending power as they command significantly more influence on household purchases than prior generations.
Furthermore, by 2020, Generation Z are expected to be the largest group of consumers worldwide, making up 40% of the market in the US, Europe and BRIC countries and 10% in the rest of the world (Booz Co).
While the full report is too long to summarize, Barclays begins by introducing Generation Z – the generational cohort born after the Millennials – and explains why they are not just ‘mini-Millennials’.
For those new to the discussion on generational behaviour, we believe there is value to be had from analysing who is driving technological disruption in addition to what. We begin by defining which generational cohorts exist today (Baby Boomers, Generation X, Millennials, Generation Z, Generation Alpha), and which factors shape their behavioural preferences.
Barclays draws on portrayals and perceptions of Generation Z from a range of sources, and attempts to gauge the potential impact of this generational ‘shift’ on key Gen Z consumer-facing industries such as Financial Services, Retail, Internet and Media (Figure 2).
The bank then analyzes the impact Generation Z will likely have on existing and potential new business models, before assessing which companies are likely to succeed.
We conclude that investors with exposure to these consumer industries stand to benefit from understanding Generation Z and how their behavioural traits are redefining consumption patterns in the post-digital realm.
Below we excerpts from some of the key sections in the Barclays report:
Millennial fixation fatigue
In popular culture, Millennials are the generation used comparatively whenever anyone talks about behavioural differences between generations, with ‘You’re such a Millennial’ being a common phrase. It is more often than not used in a derogatory manner, with common misconceptions painting all Millennials as lazy, avocado-loving, narcissistic and self-entitled (Time). To help illustrate, if you were to Google the phrasal template ‘Millennials are’, the search engine’s auto-complete highlights some perceptions of this cohort – Figure 3. This fixation hasn’t evolved with the passage of time, given that many Millennials are not necessarily young any more. We argue that the golden age of the Millennials is over and view their successors – Generation Z – as the new kids on the block.
Defining Generation Z – anyone born between 1995-2009
We define Generation Z as anyone born during 1995-2009 (age 9-23) and thus the demographic cohort following the Millennials (age 24-38) – Figure 4. At c. 2bn individuals, Generation Z is the most populous cohort of all time. Generation Z represent 25% of the global population (vs. 24% Millennials), and have a particular weighting in areas such as the United States, India, China, South East Asia and Africa. Generation Z are also known as post-millennials, centennials and the iGeneration, with the ‘i’ in the latter emphasising the level of technological immersion across Apple products (iPhone – 2007, iPad – 2010).
It’s important to note that generational boundaries are largely arbitrary. Though our definition uses the year you were born as a way to identify your generational label with ease, we also concede that people don’t necessarily belong to an ‘age bucket’. The analysis in this report is premised on the idea that members of a generation share an age location in history, which suggests that people encounter key historical events and social trends while occupying the same phase of life. Put differently, those in a particular cohort are not born inherently different to other cohorts, but their personalities, motivation and outlook are influenced to some extent by their shifting surroundings.
How old are Generation Z today?
Generation Z (1995-2009) are currently 9-23 years of age. According to the UN’s population data (2015), the majority of Generation Z are still children; however the eldest are now either graduating from college or entering the workforce. Note that the data in Figure 5 is from 2015, which is why the age range of the Generation Z cohort is c. 3/4 years lower than it is today.
Most of the Generation Z population live in developing and under-developed countries, while in many mature markets the population is older. For example, in 2015 as much as 29% of India’s population could be classified as Gen Z, while in the UK this demographic group accounted for only 17% of the total populace. Interestingly, while in absolute terms Generation Z are located mostly in either India, China or Africa, once we take into consideration market readiness (the maturity of the overall consumer market), the emphasis moves to countries such as the US – Figure 6.
What makes Generation Z different?
There are different ways to define a generational cohort; however, no matter how you do it, the attitudes, passions, strengths and weaknesses of each generation are moulded by the world around them. We believe there are three broad trends that shape a generational cohort: i) parenting & household dynamics, ii) world economy & international affairs and iii) technological advances – Figure 7. We summarise below how this is relevant to our discussion on Generation Z.
1) Parenting & Household Dynamics
At the root of the discrepancy between the two current generations of youth (Generation Z and the Millennials) are differences in parenting & household dynamics, or more specifically the differing generations that raised them.
Coining the phrase 'helicopter parents', Strauss and Howe have argued that Millennials are in part a by-product of overprotective, indulgent parents (lpsos Mori: Millennial — Myths & Realities). Millennials were raised by encouraging Baby Boomer parents during a time of economic prosperity and opportunity. This created a new set of middle-to-upper class parents that were desperate to maintain their family's escalated social standing (Quartz —How Baby boomers ruined parenting forever), using extra-curricular activities and hectic student schedules as a way to demonstrate their status as the parental elite.
On the other hand, Generation Z, it is argued, were raised by the more discerning Generation X, as they grew up in a recession, making them more conservative by nature. Generation Z witnessed first-hand the struggles their older siblings faced and resolved to do things differently. They are characterised as pragmatic when it comes to financial decision-making and have already shown the propensity to move back to traditional views of success (money, career, education) (Millennial Marketing).
2) World economy & international affair.
Though Millennials were raised during a time of economic prosperity, they were old enough to understand the relevance of 9/11 in 2001. Generation Z were either too young or were yet to be born, and thus relate more to the global financial crisis in 2008. This was followed by a wave of global terrorism, which has led to Generation Z growing up during a time of increased existential threat (perceived, if not actual) compared with the Millennials (Guardian).
Furthermore, the internet and social media have significantly impacted the way global news is disseminated. Generation Z appear to be more affected by world events than the previous generation thanks to a 24-hour news cycle that relentlessly pushes out information. For example, we now see widespread awareness of single-topic issues such as global warming, cancer research, the Trump presidency and the European migrant crisis. This makes Generation Z by default more aware of international affairs at a younger age, which, it is argued, is creating a more conscientious generation. We summarise in Figure 8 a timeline of international affairs that we think are relevant and identifiable by members of the Generation Z cohort.
3) Technological Advancements
While Millennials were digital pioneers witnessing the introduction of broadband internet, smartphones and social media, Generation Z are digital natives, not knowing a world any different to the hyperconnected one in which we live today. For example, a Millennial would remember the pain of experiencing a floppy disk error or having to experience the social pressure of maintaining an 'online' MSN messenger status using dial-up internet. However, Generation Z can't remember a time without technology at their fingertips. One of the biggest worries for this generation is whether or not they have enough battery life.
Generation Z are not ‘mini-Millennials’
Now that we have examined the factors that shape a generation, we will now illustrate how this relates to our primary discussion of Generation Z and how they are different from Millennials. According to Millennial Marketing, Generation Z are the ‘pivotal generation’. That is, while they demonstrate similarities with Millennials in the areas of technology and digital, research suggests we are seeing the pendulum swing back towards a culture that is more centred on personal success than the experiential currency cultivated by Millennials, which will greatly impact the way they interact with society.
We summarise our survey-based conclusions from a range of sources in Figure 9. We show the differences between the Millennials and Gen Z in five key areas - technology, financial habits, values, lifestyle and attitude to work & education. Please see Appendix 1 (Gen Z values and preferences) for a full discussion of the evidence behind these conclusions.