How Rising Inflation is Impacting Gen Z

Are you frustrated with how expensive everything has become? Prices have increased by nearly double the norm over the last four years (19.4%) which is hard for anyone to absorb. However, young adults tend to be the most vulnerable.

So how is Gen Z faring? Most Gen Zers (69%) rated their financial situation as fair or worse in EY’s 2023 Gen Z Segmentation Study but things may be turning around.

Read on for a look at recent trends in Gen Z’s spending, credit use, savings, college enrollment, and more. Plus, find tips on what to do if you’re struggling to make ends meet.

Spending Cuts are Giving Way to Splurges

Last year, 53% of Gen Z respondents in Bank of America’s 2023 Better Habits Survey said the high cost of living hindered their financial success. In response, about three-fourths were cutting back on spending. For example:

• 43% were cooking at home more than dining out
• 33% were trimming groceries down to the essentials
• 40% were spending less on clothes

Fast forward to 2024 and Gen Zers seem to be getting tired of pinching pennies. When asked if they planned to splurge in the upcoming months, 61% said yes, according to the 2024 McKinsey ConsumerWise Global Sentiment Data Report. The top five items they planned to splurge on were:

• Groceries
• Beauty and personal care items
• Apparel
• Restaurants/dining out/bars
• Home electronics

One Gen Zer from the survey said she planned on buying new clothes and makeup for spring. She explained that it’s important to find a healthy balance in her spending and an occasional splurge helps her enjoy life.

Gen Z’s plans to splurge may mean they’re doing better financially but could also be related to stress relief. “Doom spending” is trending with Gen Zers and millennials which refers to spending money to cope with stress, despite concerns about foreign affairs and the economy.

Credit Use is Growing

Gen Z has far less debt than other generations but is accumulating it the fastest, according to Experian. Between 2022 and 2023, Gen Z’s average debt balance increased by 15.4%, far outpacing the debt growth of millennials (8%) and Gen Xers (1.9%).

However, that isn’t necessarily a bad thing. It’s common for young adults to take on a growing amount of debt and build credit profiles as they gain legal status. Further, the majority of Gen Z seems to be managing it responsibly. The generation’s average FICO® Score increased from 668 in 2019 to 680 in 2023.

Savings are Lacking

Gen Z is struggling in the savings department. Over half of Gen Zers (56%) said they don’t have enough money to cover three months of expenses, according to the Bank of America survey. However, “loud budgeting” has been trending on TikTok this year which may be a good sign. The new money-saving method encourages you to set savings goals and be vocal about them. One of the main aims is to remove the shame around turning down social invites when you’re trying to save money.

Most are Renting or Living with Family

Rock-bottom interest rates in 2021 and 2022 caused a home-buying frenzy that spiked the median sale price of homes by over $150,000. Prices have stayed far above pre-pandemic levels while the supply has remained limited. Further, interest rates have increased by about 5% since 2022. As a result, it’s difficult to buy a home right now. Most members of Gen Z (43.5%) are renting or living with family members (39.4%), according to a survey by Self. Just 16% reported owning homes.

College Attendance is Rebounding

The pandemic put many things on hold and, for some, that included college. The overall enrollment rate for 18- to 24-year-olds dropped from 40% in 2019 to a 15-year low of 38.1% in 2021, according to the National Center for Education Statistics (NCES).

But Gen Z’s enrollment rates have been rebounding. 2022 NCES data shows enrollment ticked up to 39% for 18- to 24-year-olds. As for 2023, NCES enrollment data isn’t yet available but the National Student Clearinghouse Research Center reports an overall college enrollment increase of 1.1%. It’s also worth noting that the recent upticks are despite college tuition and fees increasing by 4.7% between 2020 and 2023.

Interesting fact: 83.5% of Gen Zers said a college education is “very” or “fairly” important in a 2023 poll by the Gallup and Walton Family Foundation.

Median Income is Growing But Some Have Employment Concerns 

The median full-time weekly income of 16- to 24-year-olds at the end of 2023 was $734, according to the U.S. Bureau of Labor Statistics. Despite a 42% increase over 2019’s median weekly income, 21% of Gen Zers cited decreasing wages as their top economic concern, according to a 2023 survey by Credit Karma. Others worried most about a lack of high-paying jobs (23%) and general job security (16%).

How Gen Z Can Weather Inflation

If you’re struggling to make ends meet and have fallen behind on your financial goals, don’t be too hard on yourself. It’s been an unusually volatile and challenging time to enter adulthood. That said, here are some things you can do:

• Review and audit your expenses: Write down all your expenses and look for opportunities to trim the fat. For example, you may want to switch to a discount grocery store, cut back on ordering takeout, and cancel some of your media subscriptions. Additionally, review services like your phone plan, internet plan, and car insurance. Consider contacting your providers to try and negotiate lower rates.
• Split costs: It can help to split costs with others. For example, you may want to carpool, live with friends or family members, buy certain grocery items in bulk with a group, and plan potluck-style get-togethers over hosting alone.
• Consider a side gig: You can also look for a way to earn extra money on the side such as selling items on Etsy, freelancing online, delivering groceries, pet sitting, or caretaking. According to EY’s survey, 56% of Gen Zers earned money through a side hustle.
• Reset your goals. Figure out how much you can realistically put towards your goals like paying off debt, saving, and investing each month. Even if it’s only a small amount, it’s better than nothing and will help you build the habit. Once you have your targets, make it as easy as possible to stick to them. For example, you may want to automate transfers from your checking account to your savings account each time you get paid.

Unusual cost of living increases have sent shockwaves through our country over the last few years, and they’ve greatly impacted young adults. But the good news is, we look to be through the worst of it—knock on wood. Now is a good time to take a deep breath, find your footing, and strategize a new financial plan for the years to come.