Gen Z and money: Are we doing this right?

If you’re like most Americans, you’ve probably experienced some form of anxiety about your finances. From student loan payments, to credit card debt, to retirement savings, money is the most cited factor which negatively impacts U.S. adults’ mental health: 52% of respondents in one Bankrate study report being more stressed about money than their own health, current events, the health of their family and friends, their relationships, or work.?

For some, financial anxiety spurs action—whether that means creating a high-yield savings account or prioritizing putting aside more funds for emergencies—but for many, the stress can be paralyzing. ?in one study, researchers found that 26% percent of Gen Z opt to ignore the source of their financial anxiety and hope the stressor will resolve itself, as compared to 22% of millennials, 20% of Gen X, and just 10% of baby boomers.

This week in TNSB, we’re diving into all things money: the debt, spending, and saving habits of Gen Z, what exactly we’re doing right—and how we might be getting it wrong.

1. Gen Z wants to save... kind of.

Aging into an economy defined by high inflation, expensive education and a competitive job market naturally comes with its fair share of trepidation. And Gen Zers are certainly feeling that pressure, especially when it comes to putting aside savings: in a study from this year, 32% of Gen Z respondents reported having higher credit card debt than funds in their savings account, and an additional 20% reported having no savings at all. According to a Travis Credit Union study from 2020, 77% of those who don’t have a savings account attribute the reason to not having enough money to save.?

For folks early in their career, this isn’t remarkably out of the ordinary. It takes time to build assets and create wealth—and it can be difficult to do that when you’re also facing expensive student loan payments every month, high rent, and other costly expenses. But when we look at the bigger picture, and examine how the financial situation of today’s young adults compares to that of previous generations, we can put in perspective some of the stressors that younger folks are feeling around money. According to a study by Young Invincibles, a young adult without a college degree in 1989 earned roughly the same income as a college graduate today. In fact, young adult workers today earn $10,000 less than young adults in 1989, with a decline of 20%.?

So wages are certainly a piece of this puzzle—and if you’ve been keeping up with TNSB: Gen Z Edition for a while, you’ll know that I feel strongly about the state of Gen Z and work—but it would be over-simplistic to suggest that it’s the only reason. Gen Z also has markedly different priorities than previous generations, and sometimes, that means not putting saving for emergencies at the top of their list. According to Intuit's Prosperity Index Study, 75% of Gen Z express a preference for a better quality of life over accumulating extra savings. This can mean anything from prioritizing personal growth, spending time and resources on their mental well-being, and investing in experiences.

2. So then does Gen Z want to spend? ...Kind of.

Despite the fact that two-thirds (67%) of Gen Z doubt they will feel financially secure anytime soon, and 60% fear they are one financial emergency away from being completely underwater, Gen Z is still willing to make major purchases—but with a few qualifications. According to Harris Poll, Gen Z consumers would rather buy fewer trivial purchases, like alcohol or clothes, than spend their paychecks on those items. In fact, according to the study, 36% of Gen Z respondents opted out of social events in 2023, in order to save.?

But at the same time, Gen Z is willing to spend on the big stuff—and by that I mean, luxury items, destination travel, and things that they deem will improve their quality of life. In fact, Millennials and Gen Z accounted for all of the luxury market’s growth last year, according to a report published by Bain & Company. Meanwhile, According to StudentUniverse’s 2024 “State of Student Travel Report,” 18.3% of Gen Z travelers in the U.S. indicated they allocated 40% or more of their disposable income towards vacations, and an additional 47.8% indicated they allocate 20 to 40% of their disposable income towards vacationing.

Dubbed by some as “Doom Spending,” the tendency for young adults to spend large portions of their paychecks on big budget items or experiences reflects their attitude toward their futures, and towards their goals of saving more generally. When you only have a couple hundred bucks to put away after making student loan payments and rent, it’s not unreasonable for younger consumers to use their remaining spending power on something that they will truly enjoy—rather than putting it toward a retirement that feels increasingly distant and fleeting. It’s a way for young adults to cut through helpless feelings about the economy, their finances, or their futures, and to bring some control, choice and even joy into their lives. It may not be the financially sound choice—and in fact, it is not helping Gen Z set themselves up for success—but it should at least help to know where Gen Z is coming from if we’re going to properly address their financial futures.

3. Debt, debt, debt... and fleeting financial independence.

A recent Wall Street Journal headline reads: “Gen Z Sinks Deeper Into Debt.” Just about as cheery as it sounds, the story details how Gen Z is facing larger amounts of credit card debt than previous generations, as more Gen Zers have picked up lines of credit than any other generation since the onset of the pandemic, in large part to make ends meet. As a result of 23-year-high levels of inflation, and lower income compared to previous generations’ young adults, Gen Z’s debt-to-income ratio is higher than Millenials’ in 2013, at 16.05% compared to 11.76%. And in considering this statistic, we can not exclude the soaring prices of education and consequent student loan debt: as of 2023, the average Gen Z borrower has an outstanding student loan balance of $24,473.?

The levels of debt that Gen Z is taking on—and in many cases beginning their careers with—has vast consequences when it comes to their prospects of financial independence, achieving major life milestones, and creating overall financial security. According to a 2021 study from CNBC, high levels of debt have led to young adults delay paying off other loans (42%), delay investing money (40%), delay saving for retirement (38%), delay buying a home (33%), delay having a baby (16%), and delay getting married (14%). As I discussed in the context of soaring housing prices, these delays have contributed to more and more young adults living at home: now, 25% of young adults live in a multigenerational household, up from just 9% five decades ago.?

So while financial independence may be a goal for much farther down the line, Gen Z is okay with sacrificing some of the more typical landmarks of early adulthood—for now. It’ll just mean that, among many other things, the support systems they keep (including their parents) should be attuned to how and when the young folks in their lives may need some extra help—whether that’s a roof to sleep under, support in making a down payment, or even just an ear to listen. And indeed, that support is needed: in 2023, nearly four in 10 Gen Z (37%) say they’ve experienced a financial setback—such as decreased savings or additional debt—causing 27% to borrow money from friends or family. In the meantime, we’ll keep working on it: despite the fact that fewer than half of Gen Zers (48%) are fully or even mostly financially independent, just over half of Gen Z (52%) feel confident that they’re on track to meet their financial goals. We’ll get there somehow.