Navigating The Financial Maze: Gen Z Faces Unique Money Challenges

Consumers around the world are grappling with rising costs as the inflation rate hit 8.8% last year.

While the central banks' fight against inflation has reaped tangible results, with the International Monetary Fund forecasting inflation to come down to 6.6% in fiscal 2023, the cost-of-living crisis has disproportionately affected the younger generation, particularly Gen Z (people born after 1996). 

"What we've found in this latest research is that financial issues are hitting some groups of us harder than others, and it appears younger people are facing the full force of the current economic situation," said Richard Klipin, CEO of Financial Services Council of New Zealand.

Worsening Financial Health 

According to a survey conducted by Bank of America, nearly 37%, or 1 in 4 Gen Zers, experienced a financial setback, including declining savings and/or increased debt. Approximately 52% of the Gen Z respondents stated they are not fully financially independent. 

This isn't surprising, as average grocery prices in the U.S. have risen by approximately 25% since January 2020, while median rent has increased by nearly 20% since before the pandemic. Electricity costs are up by roughly 20%, while the price of used cars has risen by 35% over the past four years. 

Approximately 85% of Gen Z survey respondents reported having at least one barrier to financial success, and more than half (53%) consider the primary barrier to be the high cost of living. 

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Also, 20% of the survey respondents stated high debt levels are a barrier to achieving financial success, as approximately 16% of the respondents took on more debt over the past year. On the other hand, 36% of Gen Z feel they don't have enough income to meet all their financial goals, while 30% of respondents attribute skyrocketing housing or rental expenses to be a major barrier to monetary stability. 

Bank of America states that Gen Zers who experienced a setback in terms of personal finances last year are 22% more likely to become financially dependent on their family, which is three times higher than any other generation.

Gen Z doesn't have much savings to fall back on either, as 56% of the survey respondents stated that they don't have enough rainy day funds to cover three months of expenses. 

Career-Driven Generation

The majority of the Gen Z population is entering the workforce after graduating from college. After accounting for inflation, the wages 2022 graduates earn have dropped 10.6% since their parents entered the workforce in 1984, according to a report from Self Financial Inc. 

Their careers are important to Gen Z, with 36% prioritizing the advancement of their education, 31% aiming to progress in their careers or secure a higher salary and an equal percentage expressing the desire for a new job. 

This generation also is keen on financial planning, with 26% focused on saving for retirement, 26% aiming to reduce their debt and 23% concentrating on building or improving their credit.

Thirty-five percent of Gen Z either maintain a side hustle or have engaged in one in the past. The primary motivation for embarking on a side hustle is to secure additional income for nonessential expenditures (44%) and to attain increased financial stability (36%).

Lifestyle Changes

In response to these financial constraints, nearly three-quarters of Gen Z (73%) have proactively adjusted their lifestyles, opting to spend less on essentials such as groceries and gas. Of those who have made these adjustments, 96% anticipate maintaining these changes over the next 12 months, signaling a significant and lasting shift in this generation navigating their economic circumstances. One-third (33%) also adopted a more frugal approach to grocery shopping, limiting expenditures to essentials.

Among the specific lifestyle modifications, 43% of Gen Zers increased home cooking instead of dining out, while 40% curtailed spending on clothing. 

"This is really the time to build a solid foundation that is going to allow you to be successful throughout the many next decades of your financial life," said Douglas Boneparth, president of New York-based Bone Fide Wealth. "It's never a straight line." 

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