In a notable departure from conventional financial wisdom, Generation Z is ushering in a new era of soft saving—a departure that is prompting a re-evaluation of workplace compensation structures. Born between the mid-1990s and early 2010s, Gen Z is challenging established norms related to financial planning. Soft saving, a contemporary approach, involves earmarking funds for immediate goals such as holidays, skill development, and technological advancements, steering clear of the rigid structures of traditional retirement planning.
This shift is evident in the 2023 YouGov India Millennial & Gen Z Survey, where 35 per cent of Indian Gen Z respondents prioritise saving for travel and experiences, followed by 27 per cent for education or skill development, and only 17 per cent for retirement.
“The younger workforce is not only aware but also more proactive in their approach to financial planning compared to older employees at a similar life stage.”
Nihar Ghosh, an HR leader & former CHRO, Emami Group
Nihar Ghosh, an HR leader & former CHRO, Emami Group, highlights the crux of this shift, noting, “The younger workforce is not only aware but also more proactive in their approach to financial planning compared to older employees at a similar life stage.”
This evolution is underpinned by a broader trend of prioritising experiences over material possessions—a departure from the conventional retirement narrative.
Amit Sharma, an HR leader & former CHRO Volvo Eicher, emphasises that soft saving doesn’t negate saving altogether.
In contrast to traditional saving methods such as the Provident Fund (PF), Gen Z is exploring alternate long-term initiatives such as the National Pension System (NPS) and engaging in small-scale savings such as Systematic Investment Plans (SIPs) in mutual funds and stocks. This strategic investment early in life reflects an understanding of compounding’s power, aiming for financial independence.
Raj Narayan, an HR leader & former CHRO, Titan underscores the flexibility this trend provides for individuals to optimise returns and prioritise immediate financial well-being. This not only redefines retirement but also encourages diverse investment opportunities aligned with personal goals and aspirations.
“The flexibility this trend provides for individuals to optimise returns and prioritise immediate financial well-being. This not only redefines retirement but also encourages diverse investment opportunities aligned with personal goals and aspirations.”
Raj Narayan, an HR leader & former CHRO, Titan
While this approach fosters financial freedom, potential challenges lurk. Late realisation of the need for long-term savings, especially when family responsibilities arise, could lead to insufficient funds for pivotal life stages. Actuarial considerations, including impacts on pension fund corpus and potential reductions in pension earnings due to delayed contributions, pose areas of concern. However, these challenges may spur innovative retirement-planning methods attuned to evolving financial behaviours.
As Gen Z’s approach challenges traditional retirement planning, contributions to pension funds, provident funds, and superannuation by the younger workforce may witness a decline. “There may be a decline in contributions to traditional saving options, particularly as the younger workforce leans towards more flexible and dynamic financial strategies,” suggests Narayan.
Compensation structures in organisations are adapting to this trend, offering flexibility for employees to choose their preferred savings options. Sharma notes that this shift in mindset towards instant gratification is influencing benefit structures, with companies moving towards more flexible options. Customisable benefits are gaining prominence, allowing employees to tailor plans to their current needs, whether for education, experiences, or personal development.
“This evolution is a natural part of societal development, where each generation adopts distinctive behavioural patterns. While early financial discipline is encouraged, the evolving landscape allows room for diverse approaches to achieving financial well-being.”
Amit Sharma, an HR leader & former CHRO Volvo Eicher
While Gen Z’s financial paradigm prioritises the present over saving for a distant future, there’s a growing imperative to educate them about the importance of saving for retirement. Organisations play a crucial role in providing information and perspective, even as they adapt to the evolving financial landscape.
As Gen Z steers the financial planning narrative in a new direction, Sharma suggests, “This evolution is a natural part of societal development, where each generation adopts distinctive behavioural patterns. While early financial discipline is encouraged, the evolving landscape allows room for diverse approaches to achieving financial well-being.”
This paradigm shift underscores flexibility and a focus on enjoying the present rather than adhering to stringent saving structures. Soft saving, in contrast to traditional norms, permits individuals to allocate funds based on their current financial situation and goals, paving the way for a new era of financial planning.