Solutions Economic and Market Watch

Hello, and welcome to the Economic and Market Watch podcast. This is Sam Kem of CFC.

I have been asked many times what I would be if I wasn't an economist. Without much hesitation, my answer is always that I would be a psychologist. It's not only because I mind other people's business, but also because I strongly believe that a good economist understands the psychology behind consumer behaviors, which largely drive the economy.

Today, let's look at some of the connections between the economy and psychology. More specifically, the psychological differences across generations that lead to how they perceive the economy differently.

Imagine this. There's almost a $488,000 gap between what Gen Z and Boomers consider as the necessary annual income to feel financially successful.

Yes, you heard it right. Almost $488,000 difference.

In a survey of 2,000 American adults, Boomers report that they need just under a $100,000 annually to feel financially successful. Meanwhile, Gen Z believe they require nearly $588,000 each year. If you think the younger you are, the more money you feel you need, think again. Gen X and Millennials challenge that narrative.

Millennials aged between 30 and 44 say they need just over a $180,000 annually, while Gen X — age between 45 to 60 — believe they need around $212,000 a year. Interestingly, Millennials and Gen X aren't too far apart in terms of their expectations.

Boomers, who typically earn the most, believe they need the least amount of money to feel financially successful. On the other hand, Gen Z, who earn the least, think they need the most.

This stark contrast is psychological. Boomers tend to feel more financially secure, not only because they generally earn more, but also because many of them have paid off or are close to paying off their mortgages on homes they purchased at much lower prices and refinanced at lower rates.

This sense of security is largely absent for Gen Z, who are navigating a highly uncertain economic environment with home prices that appear to only move up. For Gen Z, economic insecurity is all they've known, especially for those who entered adulthood during the COVID era. This constant insecurity creates an illusion that achieving a successful life is exceedingly expensive.

With inflation further complicating matters, Gen Z envisions a future where prices continue to skyrocket, leading them to set a higher standard for financial success.

The psychological impact of COVID on young adults plays a significant role. The pandemic not only separated those nearing adulthood from their social circles, but also caused persistent anxiety and stress.

All these factors contribute to a sense of insecurity. When life feels so uncertain, some people cope by spending more, some cope by saving more. Eventually, they end up needing more money. This may partly explain why Gen Z believe they need a substantial amount of money to be financially successful.

Additionally, it is important to note that we're discussing financial success, not just being financially comfortable. Success can mean different things to different people. Gen Z has been exposed to images of luxurious lifestyle on social media from a very young age, often without a realistic benchmark, considering that their early years were disrupted by COVID. This has set a higher bar for what they consider financial success.

The pressing question remains, will the effects of economic uncertainty in the pandemic fade over time, or are we witnessing a generation forever scarred by multiple crises?

That's it for today. Thank you for listening, and be sure to download the Economic and Market Watch intelligence brief and dashboard. Talk to you soon.