Generation Z (Gen Z) refers to those born between 1997 and 2012 and is now coming into the economy, although their financial trajectory is already appreciating different elements than those of the earlier generations. As they step into adulthood, Gen Z has the distinct trials and advantages of starting their financial lives considering technology, economic uncertainty, and changing culture. In this article, we are going to take a closer look at Gen Z’s financial health by examining their earnings, consumption, savings, and economic well-being in general.
1. Income and Employment
Starting careers in a challenging economy
Gen Z has entered the workforce during a period characterized by rapid change and uncertainty. Many of them started their careers during or shortly after the COVID-19 pandemic, which resulted in widespread job losses and economic disruption. As a result, many Gen Z workers are in lower-paying, entry-level positions or working part-time while seeking better opportunities.
Gig Economy Participation
Generation Z, unlike previous generations, has substantially participated in the gig economy. This means they are full-time in freelancing or taking up contracts. Although the gig economy allows such people freedom and the opportunity to work as they please, it counterbalances this by dishing out less salary, non-guaranteed pay, and fewer benefits like health insurance or pension plans. These gig-working practices can, however, turn out to be quite difficult in terms of financial planning and stability for Generation Z.
2. Student Debt and Education Costs
High Cost of Education
In a similar fashion to Millennials, Gen Z has also felt the impact of the need for college education. One major stress factor are student loans, and a lot of Gen Zers find it challenging as they incurred loans to study in college or university. The effect of student loans on their lives is significant by limiting their capacity to save, invest, and achieve financial freedom.
Students today are more practical when it comes to how they view education.
In relation to the above, Millennials have spent more youthful years at college than Gen Z. They are likely to explore other routes apart from the traditional four-year degree, such as community colleges, trade schools, or online brochures. Career paths that are adhered to by a majority of Gen Z are those that are less expensive and relevant to their prospective occupations in a bid to eliminate the burden of loans yesterday, today, and after graduation.
3. Savings and Investment Habits
Focus on Saving
Gen Z has a heightened awareness of the importance of saving, in part due to witnessing the economic challenges faced by Millennials and their families during the Great Recession and the COVID-19 pandemic. Many prioritize building an emergency fund as a financial safety net. They tend to be cautious with their spending and often prefer to live with roommates or stay with their parents longer to save on housing costs.
First signs of interest in investment
Even at a tender age, Gen Z has been eager to start investing, particularly through online investment apps such as Robinhood, Acorns, or others, which makes the whole process easy to understand and do. Unlike other past generations, who probably would have viewed investing as something done in the later stages of life, Gen Z is ready to invest in stocks, ETFs, or even crypto-currency whenever. The factors contributing to this trend include the availability of adequate information or learning through social media.
Cryptocurrency and Alternative Investments
Many Gen Z investors are exploring alternative investments, including cryptocurrencies and NFTs (non-fungible tokens). The attraction to these investments lies in their potential for high returns, as well as the excitement and newness of the technology. However, these types of investments also come with higher risks, and the long-term impact of Gen Z’s embrace of crypto is yet to be fully seen.
4. Attitudes Toward Debt and Credit
Cautious About Credit
Gen Z is generally more cautious about taking on debt than previous generations. Many of them have seen the consequences of financial mismanagement in their families during the Great Recession, which has made them more wary of credit cards and debt. They tend to prefer debit cards and avoid carrying a credit card balance, which helps them avoid the high interest rates associated with credit card debt.
Buy Now, Pay Later (BNPL)
One trend that has gained popularity with Gen Z is the use of Buy Now, Pay Later (BNPL) services like Afterpay and Klarna. These services allow users to make purchases and pay in installments without using a traditional credit card. While BNPL can be convenient, it has the potential to lead to overspending if not managed responsibly. Some Gen Zers find themselves struggling to keep up with multiple installment payments, leading to financial stress.
5. Housing: renting vs. buying
Rising Housing Costs
Homeownership has become increasingly difficult for Gen Z due to rising housing costs and higher interest rates. Many members of this generation are opting to rent instead of buying a home, as saving for a down payment is challenging given the student debt burden and relatively low starting incomes.
Desire for Flexibility
Gen Z also values flexibility, which makes renting more appealing than buying. They prefer to avoid being tied down by a mortgage, especially early in their careers when they may want to relocate for better job opportunities. This preference for flexibility aligns with their participation in the gig economy and desire for work-life balance.
6. Cost of living and inflation
Impact of Inflation
In recent years, inflation has significantly impacted Gen Z’s cost of living. Rising prices for essentials like rent, groceries, and transportation have made it difficult for many to save and build wealth. Inflationary pressures are especially hard on younger individuals, as they are usually in the early stages of their careers, earning less compared to older generations with more established incomes.
Managing Rising Costs
To cope with these rising costs, many Gen Z individuals are making lifestyle adjustments, such as cutting non-essential expenses, budgeting more carefully, and seeking discounts. Technology plays a significant role in helping them manage their finances; budgeting apps like Mint, YNAB (You Need A Budget), and others are popular tools for tracking spending and setting financial goals.
7. Retirement Planning
Slow Start to Retirement Saving
Given the pressures of student loans, rising living costs, and limited incomes, many Gen Z individuals have not yet begun saving for retirement. However, those who are employed in positions that offer employer-sponsored retirement plans, like 401(k), are often quick to enroll and take advantage of any employer matching.
Interest in Alternative Retirement Strategies
Gen Z also shows interest in alternative retirement strategies. Some members of this generation are exploring investments beyond traditional retirement accounts, including investing in cryptocurrencies, crowdfunding platforms, and other non-traditional assets. While this reflects creativity and a willingness to explore new opportunities, these assets are often riskier and may not provide the security that traditional retirement investments do.
8. Financial Literacy and Use of Technology
Tech-savvy with Finances
Gen Z is the first generation to grow up with advanced technology, and they are highly comfortable using digital financial tools. Mobile apps for banking, budgeting, and investing are second nature to them. They use technology to automate savings, track their spending, and invest in the stock market with minimal fees.
Social Media as a Financial Education Source
Many members of Gen Z learn about personal finance through social media platforms like TikTok, Instagram, and YouTube. Financial influencers and content creators share tips on budgeting, saving, investing, and more. While this has helped boost financial literacy, it also comes with risks—namely, the potential for misinformation or following unregulated advice that may not be in their best interests.
Conclusion
Generation Z’s financial situation is shaped by both opportunities and challenges unique to their time. They have entered adulthood during an era of rapid change, with economic disruptions and technological advancements that affect every aspect of their lives. Gen Z is more cautious about debt, values financial flexibility, and is eager to learn about saving and investing. They are proactive about using technology to manage their finances and show a strong interest in building wealth early through alternative investments.
Failures such as high student loans, higher cost of living, or lack of access to homeownership, however, are significant problems. As generation Z ages, their financial experience, in part, will depend on their ability to overcome these challenges and make the best use of the available technology and new economy. Due to their strong financial know-how, love for technology, and an adventurous spirit at a young age, they are likely to be financially stable and successful in the future, but clear decisions and planning with regards to the funds available will be key in overcoming the future challenges.
If you’re part of Gen Z or are trying to understand the financial realities of this generation, we hope this blog provided valuable insights. Remember, building a strong financial foundation is a journey that requires patience, education, and adaptability.