As American consumers continue to worry about the economy and its unstable state of turmoil, new trends in consumer behavior in spending habits have emerged. Doom spending, or the act of spending money despite economic and political concerns, and “soft saving,” a flexible approach to saving money that prioritizes mental health and personal well-being are two of the major ways Gen Z and Millennials are coping with the economic pressure.
Kaitlin Walsh-Epstein, chief marketing officer at Laurel Road, a digital banking platform and brand of KeyBank, said that given the market’s volatility, high cost of living and political woes, it’s unsurprising that consumers are overwhelmed by financial planning. Moreover, a crucial element of these consumer spending trends is the uptick in emotional spending. Given these woes, Gen Z and Millennials are choosing to live in the moment rather than acquire long-term financial security.
One potential source of this emotional spending is the mass layoffs happening across the board. As widely reported in WWD in retail and across all industries, jobs are being cut left and right — although early 2024 reports remain hopeful that the economy will come to a soft landing.
Furthermore, other sources of consumer stress come from a lack of excess savings, a leveling off in wage increases, low saving rates and less demand. The restart of student loan payments and credit card delinquencies are particularly worrisome.
Here, Walsh-Epstein talks to WWD about doom spending and soft saving and how economic stresses will continue to impact consumer behavior and spending habits throughout 2024.
WWD: What is soft saving and doom spending, and why are these behavioral trends coming to light now?
Kaitlin Walsh-Epstein: Soft saving is a current trend driven by taking a flexible approach to save money, allowing for occasional contributions without strict rules or rigid plans that is especially popular with Gen Z. While this method may lack a specific goal, it offers flexibility that aligns with individual preferences. On the other hand, “doom spending,” or the practice of making stress-triggered purchases without proper consideration, can often result in increased debt and challenges in meeting financial obligations.
These behavioral trends are gaining popularity due to increased financial pressures from today’s economic environment including inflation, rising interest rates, high cost of living and the resumption of student loan payments.
WWD: How would you describe the consumers taking part in doom spending and soft saving?
K.W.-E.: Following COVID-19 relief programs, we found that Gen Z and Millennials were feeling more financially confident than they were prior to the pandemic. Findings from our “Cashing In on Lost Time” survey from August 2021, revealed 69 percent of Gen Z and Millennials were getting back to spending money on things they missed out on due to the pandemic.
Fast forward to today, we are seeing people taking part in both doom spending and soft savings because they feel as though their financial goals may seem farther out of reach and are looking to improve mental wellness, even if just for the short term. My biggest advice is to always find a balance in your spending and savings to make sure your expenses line up with your financial goals and vision for your future.
WWD: To that end, what are the socioeconomic/geopolitical factors contributing to the rise of doom spending and soft saving?
K.W.-E.: As the economic environment and culture in the U.S. evolves, people are facing increased financial barriers and career hurdles. Laurel Road’s sixth annual gender survey from March 2023, which explored financial security and employment trends among U.S. college-educated adults, revealed that 84 percent of women are apprehensive about staying on track when it comes to financial goals due to ongoing socioeconomic/geopolitical factors.
These factors, such as inflation, higher interest rates and overall high cost of living, are leaving many feeling behind schedule regarding personal financial security, with 35 percent of all women identifying retirement savings as a key area where they are behind. As these economic factors continued over the course of 2023, doom spending and soft saving became short-term solutions adopted by some for reducing stress.
WWD: Can you speak to findings that show Gen Z would rather “live in the moment” than cut expenses given the ever-changing financial landscapes? What is the psychology here as it builds soft saving and doom spending?
K.W.-E.: For some Millennials and Gen Z financial milestones like homeownership may currently feel out of reach. With the return of student loan payments, we’re also seeing a generation of borrowers who are making payments for the first time. This coupled with inflation, has left many of these individuals choosing to live in the moment and put their money toward attainable things that provide short-term satisfaction.
WWD: How have you seen the consumer behavior of doom spending unfold at Laurel Road? What unique trends and patterns have emerged?
K.W.-E.: At Laurel Road, we have seen a change in consumer behavior as the result of doom spending firsthand. Laurel Road’s “National Savings Day” survey, released in October 2023, explored how Americans view the importance of saving and how people have shifted their savings strategy for the past three years. Findings showed only four in 10 Americans could live off their cash savings for longer than four months. When people feel they are unable to work toward their goals and are stagnant, it becomes more difficult to stay motivated.
For those who are falling into the trap of doom spending, I often suggest taking the money you were willing to part with and putting it into a savings account, such as a high-yield savings account like the one offered by Laurel Road. Being able to watch your money grow over time as you save it will put you back on the path to reaching your financial goals.
WWD: Can you share any unique insights from Laurel Road’s data on soft saving, and how it’s influencing consumer habits?
K.W.-E.: According to Laurel Road’s National Savings Day survey, since 2020, nine in 10 people have had to tap into their savings accounts for emergencies like debt (16 percent), rising rent/mortgage payments (16 percent) and unexpected medical bills (14 percent).
Despite needing to dig into their savings accounts to cover these payments, the majority (71 percent) of individuals noted that they were satisfied with their current balance demonstrating confidence in their savings progress. When people feel like their savings strategy is working for them, it’s easy to continue with their current method, even if that doesn’t mean reaching for bigger goals.
WWD: What are some other trends you’ve noticed in the Gen Z age demographics regarding soft savers and doom spenders?
K.W.-E.: Many of the young American adults who are beginning to graduate from colleges and enter the professional workforce are finding that not only are wages lower than the previous generation, but student loan debt — which currently exceeds $1.7 trillion — is a larger issue for Gen Z than any other demographic.
For many, they are unaware of the options available to them when it comes to paying down their student loan debt or pursuing federal forgiveness programs. At Laurel Road, we offer free 30-minute student loan consultations to help borrowers navigate their options, which alleviates stressors and financial anxiety, while setting them up for the future.
WWD: How do you forecast this consumer spending trend impacting retailers and brands for the rest of 2024?
K.W.-E.: Despite a reduced focus on retirement savings and long-term financial goals, this past holiday season saw consumers break record numbers of holiday spending totaling $966.6 billion. We continue to see a trend amongst Gen Z and Millennials emphasizing spending money on experiences rather than product goods. Given additional financial obligations like ongoing student loan payments, consumers will need to take a broader look at budgeting and overall spending and savings tactics in 2024 to improve their financial well-being.
