"Let the word go forth from this time and place, to friend and foe alike, that the torch has been passed to a new generation of Americans - born in this century."
Although this statement by President Kennedy in his inaugural address was made more than 50 years ago, its message is especially relevant today, as the first generation of the 21st century comes of age, known as Generation Z (those born after the year 1995). This generation will be handed down the torch from those that have come before them - Baby Boomers (ages 52 to 70), Generation X (ages 37 to 52), and Generation Y, or Millennials (ages 20 to 36). From an investing standpoint, these generations represent the various classes of investors that are currently in the driver's seat when it comes to injecting capital into the stock market.
Of these three generations, Millennials remain the most important investor class to track because they are entering the most productive and lucrative years in their careers and will have enormous spending power for decades to come. But what about Generation Z and the generation after them (those born after 2010), who are known in some circles as Generation Alpha? What do we know about these groups of individuals, including what makes them tick and the myriad ways in which they differ from those other generations before them?
Since investing behaviors are primarily driven by what people know and are interested in, it's essential to better understand these emerging investor groups in order to see investing opportunities down the line. To help companies get started, below is an overview of each generation, as well as tips on potential market segments that might appeal to the emerging generations of investors and targeted companies to keep an eye on in the future.
Millennials: tech-savvy, do-it-yourselfers
The characteristics of Millennials, including their investing behaviors, have been well documented. Known as digital-natives, they are the first generation to grow up completely engrossed in technology, thus they are very tech-savvy and trustful, even dependent, on the use of technology products, software applications, and social media platforms to ease their personal and professional lives. This group is often described as distracted, entitled and self-obsessed, preferring online investment platforms that cater to their individual needs, are transparent and are available for use 24/7. In addition, they are do-it-yourselfers, as well as environmentally conscious and focused on values-based investing.
Because this generation is deeply entrenched in advancing the digital age, the technology, e-commerce and telecomm segments are most attractive to them. Companies that could appeal most to this investor class include: Match Group (ticker: MTCH), Facebook (FB), Tesla Motors (TSLA) and Amazon.com (AMZN).
In terms of potential IPOs that might be attractive investment opportunities for this generation, companies such as Twilio, Uber, AirBnB and Snapchat, which some experts say could go public as early as next year, are ones to keep an eye on in the future.
Generation Z: cloud-natives and entrepreneurs
Born after the year 1995, this generation is the first of the 21st century. It is comprised of children born from Generation X parents, and they will be entering the income class within the next five to six years. Given that they have never known a world without the internet and connected devices, this generation has a unique set of online habits that differ significantly from previous generations, even Millennials. Instead of being addicted to online platforms and smartphones/tablets, this group views the online world as a place to get things done easily, efficiently and inexpensively, and they are more selective about their online spending. They are less idealistic than the previous generation and, given that they are the most diverse generation to exist to date, they are more tolerant and mindful of the importance of diversity in the U.S.
Additionally, this generation is creative and would rather create their own photos and memes rather than share existing content through retweets and status updates. And while this age group has only ever known a digital world, they are private when it comes to sharing personal content online, thus they don't tend to spend a lot of time on other people's social media profiles.
So what does this mean in terms of their likely investing proclivities? Social media platforms like Facebook will likely suffer from a lack of users with this generation. Instead, they will be more focused on utilizing Snapchat, Instagram, Pinterest and even Twitter, as their attention span is only estimated to be approximately 8 seconds long. And while e-commerce sites like Ebay, Groupon and Amazon seem to fit this group's online shopping patterns, they will not spend too much time poking around these types of sites, so unless these companies change their business model in the future, they too might not attract capital from this upcoming investor class.
Finally, given that 66% of kids ages 6 to 11 say that online gaming is their primary source of entertainment, these companies will likely continue to attract this investor segment as new games and systems are developed in the future. They also prefer to own things instead of share products and services, so companies like Uber and Lyft, and online vacation property renting websites, such as AirBnB and HomeAway, might not be as appealing to this generation.
Generation Alpha: TBD
This cohort of individuals are those born between the years of 2010 and 2025, meaning the oldest of the group are just entering kindergarten or first grade and the youngest don't even exist yet. And while their time on this planet has been limited, there are some patterns that have emerged about this next, next generation based on who their parents are, the ways in which they will likely be raised and the environment in which they will grow up.
First, they are going to be the largest generation recorded to date, with estimates standing at about 2 billion by the time they have all been born by 2025. That alone represents significant investing power for the future, and companies should start thinking through how to engage and penetrate this market now.
They will be formally educated, technological experts and potentially the wealthiest generation ever to exist. Sometimes referred to as "Generation Glass," the oldest segment of this age group was born in 2010, the year the iPad was introduced to the market, and the same year the Instagram was created. Not only will they be more technologically advanced than previous generations, but their ability to utilize technology quickly and efficiently will be unprecedented, as technology will not be viewed simply as a tool but a part of each individual's DNA.
In short, technology will, of course, be an important segment for this generation once it has obtained purchasing power. Tech companies that are changing the way people interact, buy and sell goods, and share information down the line will likely resonate well with this age bracket.