As the youngest generation in the workforce, Generation Z (Gen Z), those aged 12 to 27, are navigating a landscape filled with economic uncertainty, rising costs, and soaring debt.
The challenges Gen Z faces are strikingly similar to those that plagued millennials during their entry into adulthood, but with crucial differences that amplify their struggles.
While many members of Gen Z have college degrees, jobs, and growing incomes, they are also burdened with higher housing costs, student loan balances, and debt levels that surpass those of millennials at the same age.
As a result, the question arises: is Gen Z spending too much, or are they simply caught in an unsustainable economic system?
Gen Z’s rising financial burden
In the decade since millennials began to establish themselves in the workforce, the economic landscape has shifted dramatically.
Gen Z is spending more on essential costs like housing, insurance, and transportation compared to millennials of the same age.
According to a Washington Post analysis of Bureau of Labor Statistics data, Gen Z is spending 31% more on housing than millennials did at similar life stages.
Meanwhile, their spending on health insurance has increased by 46%, and car insurance spending has more than doubled.
Michele Raneri, head of US research at TransUnion, notes that the financial strain on Gen Z is compounded by the pandemic and its economic aftermath.
Gen Z consumers have seen their finances significantly impacted by the pandemic and its aftermath, even more so than the challenges faced by millennials.
Adding to the strain, student loan debt has become an inescapable financial burden for Gen Z, with the average borrower holding about $21,000 in student debt—13% higher than millennials at the same age, according to data from the St. Louis Federal Reserve.
Maxed out and falling behind: The rise of credit card debt
Beyond housing and student loans, Gen Z’s debt levels are concerning across the board. Roughly 1 in 7 Gen Zers are maxed out on their credit cards, more than any other generation.
The combination of easy access to credit and the pressures of post-pandemic spending has resulted in many young adults accumulating high-interest debt.
According to the New York Fed, credit card balances for Americans in their early 20s have risen by 25%, outpacing inflation.
In addition, delinquencies on credit cards and car loans are higher for Gen Z than they were for millennials a decade earlier.
The effects of inflation and rising costs on Gen Z’s finances
While Gen Z enjoys higher wages than millennials did at the same age, the increase has not been sufficient to offset the rising costs of living.
According to Moody’s, adults under 27 spend more on essentials like housing, dining out, gas, and insurance—categories that have seen significant price increases in recent years.
Compared to their millennial counterparts, Gen Z faces a different kind of economic challenge.
Millennials entered the workforce during two major recessions, including the Great Recession, which left many struggling to find employment.
Wages took a hit, and millennials saw a 13% reduction in earnings between 2007 and 2017.
Gen Z, by contrast, entered the workforce during a relatively strong economy, but they are facing a combination of rising inflation, high interest rates, and increasing costs across the board.
Data from the Atlanta Fed shows that wages for 16-to-24-year-olds have risen by 8.6% in the past year, outpacing the overall wage growth of 5.2%. However, inflation has eroded much of these gains.
Rising housing costs, in particular, have had a substantial impact on Gen Z’s finances. Many younger adults are renting rather than owning homes, and frequent moves lead to further price increases.
A RentCafe analysis revealed that Gen Z renters are expected to spend an average of $145,000 on rent by the time they turn 30, compared to the $126,000 spent by millennials.
The role of debt in shaping Gen Z’s financial future
The financial realities facing Gen Z are further exacerbated by the long-term implications of debt.
Members of Gen Z are more likely to have student loans than millennials, and they are carrying higher balances as well.
Additionally, a growing number of recent college graduates are struggling to find stable employment.
Data from the New York Fed shows that recent college grads are more likely to be unemployed than the general population—an alarming trend that threatens to derail their financial futures.
Is Gen Z spending too much, or is the system failing them?
While it’s easy to point to Gen Z’s rising debt levels and credit card use as evidence that they are overspending, the reality is more complex.
Gen Z is navigating an economic landscape where costs for necessities are higher than ever, and the gap between income and living expenses continues to widen.
Debt, whether from student loans, housing costs, or credit cards, has become a necessary burden for many young adults.
Jimmie Lenz, a financial economics professor at Duke University, highlights the generational shift in economic circumstances.
We’re at an inflection point: [Gen Z is] coming to age in a time of rising inflation and rising interest rates — and that will stay with them.
The combination of high debt loads, inflated costs, and stagnant wages could have lasting effects on Gen Z’s financial health and economic mobility.
The COVID-19 pandemic also played a role in shaping Gen Z’s financial behaviour.
Many younger adults, eager to make up for lost experiences during the pandemic, found themselves spending on leisure activities and impulse purchases when restrictions were lifted.
Banks and financial institutions, meanwhile, loosened their credit requirements, giving young borrowers easy access to credit cards and loans—often with dire consequences.
A generation in need of financial support
As Gen Z faces these financial challenges, there is growing concern that the current economic system is failing them.
Rising housing costs, stagnant wages, and student debt have created an environment where many young adults feel trapped in a cycle of debt and financial instability.
For Gen Z, financial support and education may be key to navigating these challenges.
Policy changes aimed at reducing student loan burdens, increasing affordable housing, and providing accessible financial education could go a long way in helping this generation build a more stable financial future.
In the meantime, Gen Z will need to balance their desire for financial independence with the harsh economic realities they face.
The question remains: Are they spending too much, or is the system stacked against them?
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