Generation gap in relationship with money and wealth

Since time immemorial, money (or the possession of resources in a pre-money era) has enabled people to fulfil their personal aspirations – to live, enjoy, build, stabilise, invest, conquer, support or bequeath. It is always linked to who we are as an individual and as a society. So it's not surprising that every generation defines its own relationship with money.

Psychic net income, a way of understanding behaviour

Before getting into specific behaviours, it is interesting to introduce a micro-economic dimension described by Irving Fisher as psychic net income. In essence, this determines the way each person sees their financial income and what they can get out of it in terms of usefulness, in both an economic and, above all, a psychological sense. This concept is extremely subjective and varies greatly from one individual to another. It is a more personalised approach that goes well beyond a monetary calculation, with all the uncertainty that this entails since it falls outside a quantitative framework.

Psychic income considers the link between an individual's intrinsic motivations and the way in which they invest their wealth. It starts by answering the question "What is important to me? Travelling? Having several second homes?” and then assesses income against aspirations.

Every generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.George Orwell

This observation offers a starting point for a clearer understanding as to whether your income seems sufficient and what it means to ‘be rich'. According to the Magnify Money website, 55% of Americans consider they are rich if they lead a comfortable life, while one third consider they are rich if they own a property.

The ‘Ys’, connectors between the ‘Xs’ and the ‘Zs’

Modigliani's life cycle theory articulates the relationship between financial resources and stage of life. It provides much less clear-cut answers than for earlier generations (the 'silent generation’ - people born between 1925 and 1942, and the 'baby-boomers' born between 1943 and 1959). The separation between work and non-work is less clearly defined. As different ways of working are combined, careers are less linear, and the certainty of work-related income recedes.

Longer life spans mean that potential inheritances come much later in adults’ lives, hence the definition of Generation Y, also known as Millennials, as a ‘sandwich generation’. They are caught in the middle, between their financial obligations to their ageing parents and support for the younger generation, who become financially independent much later than they did. According to Béatrix Charlier, founder and CEO of the HR consultancy P'OP in Luxembourg, the ‘Ys’ are "at the generational crossroads". They play “a connecting role" between the ‘Xs’ and the ‘Zs’. They are the ones who started demanding a work-life balance and the freedom to work from wherever they want.

Across generation ‘Y’, the marriage rate has fallen by 39% and the rate of home ownership by almost 30%. Combined with a birth rate at its lowest level for a century, all these figures lend weight to the empirical trend that material things are seen as a constraint because they are immovable and require commitment.

Older people are wealthier and more worried

This shift in priorities is leading to a growing concern among older people about the financial well-being of their children, especially given the relative wealth of generation Y mentioned above. By way of illustration, according to INSEE statistics and the YPulse study (2020), the stock of gross wealth for French people represented 6 times income in 2000 and almost 9.5 times in 2017, attesting to a general enrichment of the French population over time.

"People who want to generate impact are already well established in life. They're interested in ESG because their future's already secure,” says Tara Bendo, Stock Market Analyst for L’Investisseur/L'Echo and commentator for the LN24 news channel. "Whereas people starting from scratch will be more concerned about increasing their level of wealth and building stable assets, even if they're not insensitive to the issues.”

The figures below show the link between security and principles.

Older investors are more likely to prioritise values and principles

People who feel it is important that the funds they invest in are built around their values and principles

Schroders Global investor Study 2022

According to Moneystore, more than four-fifths of people over the age of 71 are likely to favour personal principles in their investment decisions. "The major distinguishing factor in people's behaviour is whether or not they have received an inheritance. People who get an inheritance feel responsible for what they have been handed down from the previous generation and how they will pass it on to future generations. This makes them more inclined to use it wisely and ethically, beyond their personal desires. Inherited wealth is managed from a different perspective than when people have earned it themselves and can do what they want with it,” explains Joelle Liberman, sociologist and founder of the consultancy Egerie Research. "The fact that women have a real voice in decision-making has also changed the situation. Fathers are educating their daughters in wealth management, whereas in previous generations the girls would receive a legacy but not manage it. Women make decisions by integrating a series of broader criteria, such as meaning and environmental or social impact, in addition to profitability.”

Between eco-anxiety and conventional investments

One thing is certain, the relationship between consumption and investment has changed. Generally speaking, the ‘Z’ generation is dubbed the "treat-yo’self" generation. But in reality, it's much more complex than that. Béatrix Charlier distinguishes between two groups of people. In the first group, people believe that we are living in an “apocalyptical scenario”. Some suffer from eco-anxiety and manage it in a different way. There are those for whom "It's a lost cause anyway, so they invest in fashionable products and buy a house. They're going to go on doing what they did before," she explains. Others don't even build up any savings.

For some people in this social group, money is used to buy things for their well-being and mental health, such as eating out, travel, and beauty products. This epitomises a preference for experiences over ownership, which would inevitably imply different choices in terms of investment.

"One in five young people have a crypto account and only one in ten have a securities portfolio. There's a big gap between what young investors would like and what’s on offer. They want digital, user-friendly, quick and simple. They want faster processes, reflecting the way they live today – deciding to open an account via their smartphone and getting a response within an hour, for example – whereas their elders are happier with human contact. They have far less patience," explains Tara Bendo.

“The value of work and effort aren't the most important thing any more; it's the power of algorithms that fires their imagination. These young people are investing to try and achieve what they see as the definition of success through social networks, to get on the social ladder very quickly. They are motivated by emotion, not possession. Why buy a property when you can get an Airbnb? The dream is to have money for life at 35 and be a nomadic worker, with no ties or worries.”

According to the founder of the HR consultancy P'OP, the ‘Zs’ are entrepreneurs. They prefer "to create their own project because it corresponds to their values" rather than work for an existing company that uses values as marketing arguments.

The second category, the generation born from 1995 onwards, "has a relationship with money that has been nurtured" through various readings. They are more optimistic and committed than their peers, and are prepared to invest, but not just under any conditions. "It has to be a green investment that supports a project to repair the earth. This generation is not afraid to take countries to court," she continues.

Key points

People's relationship with money is influenced by a variety of perceptions: social, psychological, family, political and generational. There are, however, some striking differences between generations, determined by the macro-economic and political context in which they grew up.

Money has become a central element, interacting with major sociological issues such as the state of the planet, work-life balance, the marriage rate, birth rate, social evolution index, gender equality, taxation, the relationship to time and trust in institutions.

From the ‘silent’ to the ‘creative’ generation

The silent generation (1925-1942) – thrifty, prudent, loyal, steeped in a sense of duty. Notions of time and reflection are paramount.

Baby-boomers (1943-1959) – conservative, focused on the value of work and the social representation of their career. Inclined to be critical of young people.

Generation X (1959-1977) – pessimistic about the future, drawn to collapsology. Hedonists and challengers.

Generation Y (1978-1994) – focused on the moment, the ‘here and now’, less geared to retirement planning.

Generation Z (1995 onwards) - silent, generation C for Communication, Collaboration, Connection and Creativity.