What is the 'soft savings' trend and why financial experts are warning against it?

Soft Savings: Here is why Gen-Z's saving style has experts worried

When it comes to financial planning, Gen-Z is not following the path well-trodden. Unlike previous generations, American youngsters are more laidback when it comes to saving and financial security, according to a recent Prosperity Index study by Intuit.

The study found that young adults between the ages of 18 and 25 are more keen on investing in experiences that promote mental well-being and personal growth in the now, rather than saving for the future. This new trend, termed “Soft saving”, has been called Gen-Z’s answer to FIRE and hustle culture.

For those who may not know, FIRE is an acronym for “Financial Independence, Retire Early” – a lifestyle movement where people aim to save enough to retire young. Recent trends indicate that retiring early is not something that Gen-Z is interested in doing at all.

“Our data shows that the latest generation to dive into the world of personal finance is not looking to retire early and may not be planning to retire at all,” read the Prosperity Index study. “Though Gen Z is interested in exploring and learning about saving and investing, the approach is much softer than in previous decades - it's all about personal growth and mental wellbeing in the now, and they would rather feel more fulfilled now than save for a future that is unknown.”

However, financial experts worry about the soft savings trend.

“Most financial experts recommend having at least three to six months’ worth of expenses set aside,” Kara Duckworth, managing director of client experience at Mercer Advisors, told CNBC. Duckworth said that Gen-Z clients would rather spend on a long trip than pad up their savings account.

“As a wealth advisor, my radar goes up,” she said.

Ted Rossman, senior industry analyst at Bankrate, also points out that the habit of saving early can have long-term benefits.

“Every dollar you set aside in your 20s will compound over time,” Rossman said. “Compound interest is the eighth wonder of the world.”