Why Gen Z are right to be worried about money (2024)

In 2021, Lauren moved from Birmingham, UK, to London to advance her early career in healthcare. Before relocating, Lauren, 25, was working for the NHS as a theatre support worker, a position paying £20,000 ($22,380). Her new London-based job bumped her salary to £38,000. But even with the increase in pay, Lauren still has trouble balancing her finances.

As the cost of living and inflation skyrocket in the UK, Lauren says she’s still unable to put away money – or is even interested in trying to save – and often goes overdrawn on her bank account for basic purchases. “I was basically on minimum wage. Now, I’m on a pretty decent wage, especially for my age, but I’m always on overdraft,” says Lauren. Her pay may be “decent”, but it’s not sufficient to for London – and not because Lauren is spending frivolously. “For the past year I’ve been in London, by the time I get to mid-month, I’m using my overdraft, and I’m quite comfortable with that now.”

Lauren envisages buying a home as she gets older, but is less than clear on how – or if – she’ll be able to get there. Her financial situation has kept her from planning for the long-term. “I don’t massively think about too many years into the future ... I’ll just keep going to work, and maybe I’ll buy a house at some point somewhere, and that’s about the limit of what I kind of get myself into.”

The story is largely the same for young people in other countries also feeling the effects of the rising cost of living. Maddie, a 25-year-old based in Pennsylvania, US, works as a wellness coordinator at a senior-living home. Despite having a degree in exercise science, her pay cheque isn’t going far enough.

“I only get paid $17 an hour, and my max hours are 35 per week. My rent is $850 a month. Plus my car, my internet, everything you need to live. It’s like I’m barely scraping by lately,” says Maddie. She’s considered working a second gig-economy job to supplement her wages, but the price of gas near her is high enough to make her wonder if it’s worth it. “It feels like there’s no end in sight, and like it’s never going to get any better.”

Across the world, many Gen Zers, like Lauren and Maddie, are in similar financially insecure positions, report feeling the squeeze from the current economic instability. Data from Deloitte’s 2022 global Gen Z and Millennial Survey shows that a third of Gen Z respondents worry about the cost of living above all other concerns; 45% live pay-cheque-to-pay-cheque, and just more than a quarter doubt they’ll retire comfortably.

Although the effects of an unstable economy impact everyone, Gen Z – those born roughly between 1997 and 2012 – are particularly worried about money. As they are just establishing themselves, their finances are taking a hit in the short term, which could trickle down to how they are – or aren’t – able to forge their paths and plan their futures. And unfortunately, say experts, they are right to be concerned.

Some young people say they've become financially complacent, and used to overdrafting their bank accounts (Credit: Getty Images)

‘What’s the point of putting in the time and effort?’

Even before the current economic conditions developed, younger generations were facing greater struggles than their parents to overcome financial challenges and prepare themselves to hit important milestones like homeownership.

For instance, research on the US and southern Europe from the World Economic Forum's Centre for the New Economy and Society has shown that younger generations are far less likely to own their own homes than older generations were at the same age. There are several reasons for this, but a key issue is that the price of the median home has been gradually increasing relative to the median income. It’s not that younger generations don’t want to own, according to researcher Gonzalo Paz-Pardo, senior economist at the European Central Bank – it’s that they can’t.

In tandem, younger generations’ wages also aren’t going as far as they did. In the US, despite general wage increases throughout the past five decades, the cost of living has far outstripped the pace of pay rises. It’s particularly acute for the youngest generation: some analyses show that in the US, Gen Z have about 86% less buying power than Baby Boomers did at the same age.

The pandemic has piled on financial hardship. US survey data from 2021, conducted by financial-comparison service Bankrate, has shown the pandemic has made 59% of young people – aged 18 to 35 – more likely than older generations to put off life milestones. This figure was 40% for those aged 35 to 55, and went down to 23% for respondents 55 or older.

And now, today’s increasingly precarious economic conditions are exacerbating the struggles of young people, who are just starting out.

Global inflation has made the daily lives of billions of people more difficult, as costs soar. According to data from Refinitive and the National Statistics Offices, August 2022 figures for consumer price inflation in the UK and US were 9.9% and 8.3%, respectively. The same data shows that in Argentina, the situation is more extreme, with inflation soaring to 78.5%; Turkey is experiencing a nearly 80% price spike. Energy prices have also risen to crisis levels in some countries – a problem particularly acute in the UK. Additionally, higher interest rates are driving the threat of a looming recession.

Seattle, US-based Tori Dunlap, founder of financial-education company Her First $100K and author of Financial Feminist, says the global economic situation is indeed putting pressure on all generations. Yet Dunlap, who works primarily with younger women to help them with money-management strategies, sees Gen Z experiencing unique pains from these rising costs – which will ultimately hurt them in terms of creating key building blocks for their financial futures.

As Gen Zers are just entering adulthood, transitioning into the workforce from university, she says the unstable economy is affecting their ability to pay off debt, and even keeping them from establishing credit history they’ll need to build their futures. An inability to save may also set them up to take on more debt in the future, she adds; for instance, many Gen Zers aren’t able to put aside money into an essential emergency fund, save money to buy a house, build a family or retire.

The proliferation of student debt for young people is also a factor preventing Gen Z from saving. In both the US and UK, Gen Z are carrying high loan balances – more than millennials and Gen Xers. In the US, for instance, the average Gen Zer owes roughly $20,900 in student loan debt, which is a 14% increase on what millennials owe. Additionally, more Gen Zers carry this debt – roughly 36% of Gen Zers aged 20 to 25 have student loan debt, five percentage points higher than millennials. And in the UK, although there is a stronger scheme for student-debt repayment compared to the US, student-debt figures exceed £40,000 ($45,110) for undergraduate borrowers – roughly double the average of American students.

Maddie has around $25,000 (£22,560) in student-loan debt, which she has deferred payment on since graduating in 2019. She was able to save money by living at home while attending an in-state university, which are often less expensive than out-of-state or private universities, but she still owes a sum she sees as insurmountable to repay.

“I just pretend like it doesn’t exist,” says Maddie. She’s unsure if she qualifies for the recent debt relief announced by President Biden and, at this point, has not felt motivated to check. “Everyone’s going to be in debt their whole life. I don’t want to be, but I have this feeling that no matter what I do, no matter how hard I work, there’s always going to be some kind of debt that I have.”

A worrying bellwether

Kassandra Martinchek, research associate at the US-based non-profit thinktank Urban Institute Center on Labor, Human Services and Population, says the past experiences of millennials can be used as a bellwether for how Gen Z may fare in the future.

Martinchek’s research has shown millennials have experienced “long-term employment and earnings scarring” from entering the workforce amid a recession. For one, she says the global Great Recession of 2008 caused millennials to face several years of low wages, which meant they struggled to lay the foundation and create the building blocks for their futures. And research shows that even a decade after millennials started their careers, they earned less and had lower employment levels than earlier generations who didn’t experience a recession.

So, as Gen Z are also entering the workforce amid uncertain economic times – pandemic turbulence as well as a looming recession – she believes they may be primed to experience similar effects. “As they’re getting their career started,” says Martinchek, “we're concerned about the lasting disadvantages that they'll have that limit their ability to establish financial security throughout adulthood.”

It's taken each successive generation longer to reach key milestones like homeownership, and Gen Z may be on the back foot, too (Credit: Getty Images)

If this plays out, this situation can not only harm Gen Z’s practical prospects and future opportunities, but some research has also shown this inability to reach milestones is taking a psychological toll, as young people feel the pressure to hit these goals, yet don’t have the resources to do so. August 2022 research on “milestone anxiety”, conducted by UK-based relationship-support network Relate, showed 83% of Gen Zers are feeling the pressure to hit milestones, compared to 77% of millennials and 66% of over-75s who reported feeling this way when they were younger.

In other knock-on effects, money stress can also affect Gen Z’s ability to form a strong sense of identity, believes Dunlap. “Everything about money is emotional and psychological, and if you are financially struggling, it’s going to impact every single area of your life. It’s going to impact your relationship to yourself, your relationships to others,” she says. “Gen Z is still looking for their identity, and [now] they have the financial pressure that keeps them from discovering it.” Along with managing stress linked to financial instability, Dunlap says the economy is also impacting social behaviours, like the inability to go out with friends – formative experiences younger people need to thrive.

Ultimately, we could see large swaths of a generation that never achieve the financial security their parents did, and are constantly feeling stress as a result. And, given the enormity of the task to find solid financial footing and build a future, many Gen Zers are finding themselves with similar attitudes to Lauren and Maddie – a feeling of defeat and a demoralising, permanent uphill climb that’s difficult to reckon with.

“I moved out and I guess I didn’t really have a sense of what the real world was like. I knew I had to pay bills, and I felt I was ready for that. But I didn’t expect the world to crash a year after I moved out,” says Maddie. “It’s hard to see past month to month. Everyone asks what you want to do in five or 10 years. I have no idea because I don’t know what the world is going to be like in five to 10 years.”