My 25-year-old son has a substantial holding of Bitcoin, which he scraped together with hard-won earnings from his first job after college graduation. For the first year, we teased him about this “crazy” investment. But when Bitcoin peaked last year at $63,000, we were suddenly complimentary—and envious.
Since then, Bitcoin has sunk to around $40,000, but the upside potential remains. Despite cheering on our son’s investment from the sidelines, my husband and I did not jump into the crypto fray, aside from small purchases of lesser-known coins and a DAO, borne more out of curiosity than a retirement investment strategy.
The dynamic playing out in our family is a microcosm of the generational dynamics playing out in the finance macrocosm. Gen Z, and to some extent Millennials, are leading the charge into decentralized finance (DeFi)—cryptocurrency, NFTs, and DAOs. And they are doing so precisely because of generational attributes.
A time of life for risk
It’s Financial Advice 101: Your investments should become increasingly conservative as your years to retirement shorten. Obviously, Gen Z—those who were born between 1997 and 2012—are the youngest in the workforce. Their investments should be most aggressive. DeFi is all new and not time-tested. It can be a risky investment. Which makes it perfect for Gen Z. For Boomers, it would not be a solid foundation for retirement. The numbers reflect this. A recent survey by Capitalize shows how the retirement investments in crypto and NFTs breaks down by generation: for Gen Z, 56%; for Millennials, 54%; for Gen X, 20%; and for Boomers, 14%.
Older generations are hogging wealth
Young people, anecdotally and statistically, are keenly aware that Baby Boomers and the Silent Generation currently hold the majority of wealth in the U.S., with no signs of letting up until we pass our wealth when we die. This gives GenZ and Millennials limited ability to acquire the big assets that have traditionally built wealth: real estate and stocks. Seeing no entry here, these younger generations have taken advantage of a new type of asset class.
Open minds can embrace new instruments
Morgan Housel, in his book The Psychology of Money, aptly points out that our approach to money is largely shaped not by theory but by our own experience. Younger people do not have years of reinforcement about certain financial principles, nor have they (perhaps until now) experienced inflation or recession. This may provide an openness to new financial instruments. Conversely, they may accept instability as a given, having come of age in a pandemic.
Ah yes, the digital natives
What they have grown up with is technology and its pervasive role in everyday life. This level of comfort means embracing the new digital finance world is a natural step. Older generations must get over two hurdles—how to use the technology and how to trust money you can’t touch—which is more of a leap.
Sticking it to The Man
Rebellion is a hallmark of youth, distrust of what’s come before. Baby Boomers had their own youthful rebellions, like long hair, rock and roll music, and protests against the war in Viet Nam. Today’s younger generations have a growing mistrust of government, making crypto and its independence from central banks appealing. (In fact, according to the 2021 Edelman Trust Barometer, distrust grew 5% in the last year alone, across all generations.) But younger generations also have an idealism that buoys hopes that new financial instruments may bring windfalls, which is some of what you see with the NFT markets.
Digital finance communities are a draw
Growing up with social media and in digital communities (our kids fondly remember Club Penguin!), the community aspect of DeFi makes it an attractive place for Gen Z and Millennials. Many of the DeFi instruments have communities on Discord, where those who hold investments share thoughts and plain-old camaraderie. Much of DAO governance decision-making happens here, and NFTs are often bought based on how active the community is. In addition, slang terms create a sense of insider-ness. While Boomers invented some of their own language decades ago, like hippie, cool, and far out, the young people in DeFi connect with acronym-style social signals, like HODL (hold on for dear life), gm (good morning), and WAGMI (we’re all going to make it).
The story of DeFi, while all-new is age-old. It reflects a natural draw for the younger generations, while older generations watch cautiously, largely from the sidelines. It’s the natural order of things. My hope is that ultimately WAGMI will apply to all generations, even those not holding Bitcoin.
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