It is a well-known fact that the high cost of living is taking a toll on the younger generation – Generation Z. According to a report from Bank of America, nearly half of Gen Zers between the ages of 18 and 27 rely on financial assistance from their family. This financial support is becoming crucial for young adults as they face day-to-day expenses that hinder their financial success. Holly O’Neill, president of retail banking at Bank of America, noted that the high cost of living is significantly impacting Gen Z. The financial institution conducted a survey of over 1,000 Gen Z adults in April and May to understand their financial struggles.
Many Gen Zers find themselves strained by the higher prices of necessities such as food, gas, and housing. Compared to their parents’ generation, Gen Z individuals are facing lower wages when adjusted for inflation. Additionally, they are burdened with larger student loan balances, which compounds their financial struggles. Reports have shown that Gen Zers tend to spend more on basic necessities than young adults did a decade ago, leading to increasing debt levels. A worrying trend is that roughly 15% of Gen Zers have maxed out their credit cards, putting them at risk of falling behind on payments, more so than any other generation, as reported by the New York Fed.
In the aftermath of the Covid pandemic, homeownership has emerged as a significant driver of wealth creation. However, those who have been priced out of the housing market, especially Gen Zers, are finding it challenging to achieve financial security. Brett House, an economics professor at Columbia Business School, highlighted that the inability to own a home presents a massive hurdle for wealth accumulation among Gen Z. Housing costs, being the second-highest expense after food and groceries, are a major concern for young adults today. Bank of America’s research also revealed that the majority of Gen Z individuals do not pay for their own housing, further underscoring their dependency on financial assistance.
Experts recommend that individuals should allocate no more than 30% of their take-home pay towards housing expenses. However, many young adults are exceeding this threshold, with two-thirds putting more than 30% of their income towards housing, and nearly a quarter spending over 50%. O’Neill recommends following the 50-30-20 rule, where 50% of the income is allocated to necessities, 30% to discretionary spending, and 20% to savings. This structured approach can help Gen Z individuals better manage their finances and work towards financial stability.
It is essential to recognize that the financial struggles faced by Generation Z are not isolated. A separate report by Bankrate indicated that most Americans believe they do not earn enough to live the life they desire. Only 25% of adults reported feeling completely financially secure, reflecting a decrease from previous years. The report also revealed that Americans feel they would need to earn $186,000 on average to live comfortably, and over $520,000 to feel rich. Challenges related to inflation, housing costs, and college affordability are significant hurdles in achieving financial security, leading many individuals to feel disconnected from their financial aspirations.
The financial struggles of Generation Z and beyond are complex and multifaceted, driven by high living costs, stagnant wages, and increasing debt levels. It is crucial for young adults to adopt prudent financial practices, seek support from financial experts, and strive towards financial literacy to navigate these challenges effectively. By understanding their financial situation, setting realistic goals, and making informed financial decisions, Gen Z individuals can work towards a more secure financial future.