Gen Z has often been criticized for spending money on avocado toasts, designer bags, and luxury holidays, while lamenting their inability to save for a house deposit. However, recent research highlights the significant financial hurdles this generation faces.
A study by TransUnion revealed that young adults in their early 20s are earning less, carrying more debt, and experiencing higher delinquency rates than Millennials did at the same age. The study compared the financial situations of 22-24-year-olds today with Millennials of the same age a decade ago, finding that today's young adults earn around $45,500 annually, compared to the inflation-adjusted $51,852 earned by Millennials.
In this article, we will discover why Gen Z feel they’re falling behind financially and learn how they can turn things arounds
A study by TransUnion revealed that young adults in their early 20s are earning less, carrying more debt, and experiencing higher delinquency rates than Millennials did at the same age. The study compared the financial situations of 22-24-year-olds today with Millennials of the same age a decade ago, finding that today's young adults earn around $45,500 annually, compared to the inflation-adjusted $51,852 earned by Millennials.
In this article, we will discover why Gen Z feel they’re falling behind financially and learn how they can turn things arounds
What Are the Possible Reasons Behind GenZ Feeling They’re Struggling or Falling Behing Financially?
1. Finding the Right Balance Can be Tough
When you're young, it can be challenging to balance living for today and planning for tomorrow. This balance becomes increasingly difficult during periods of high inflation, as everything costs more, making it hard to save after paying the bills.
"Finding the right balance between enjoying life now and securing your financial future can be challenging, especially when faced with economic hardships. It's a common struggle for young adults to juggle immediate desires with long-term financial goals," says Don Connelly, a financial expert.
When you're young, it can be challenging to balance living for today and planning for tomorrow. This balance becomes increasingly difficult during periods of high inflation, as everything costs more, making it hard to save after paying the bills.
"Finding the right balance between enjoying life now and securing your financial future can be challenging, especially when faced with economic hardships. It's a common struggle for young adults to juggle immediate desires with long-term financial goals," says Don Connelly, a financial expert.
2. Rising Living Expenses Represent a Huge Challenge
According to a recent analysis, Gen Z is earning significantly less than Millennials did at the same age. A study by Deloitte found that as of the last quarter of 2023, individuals aged 22 to 24 in Gen Z earned an average of $45,493, whereas Millennials at that age earned $51,825 (adjusted for inflation). This income disparity is largely attributed to Gen Z entering the workforce during a period of high inflation, which has seen a cumulative price increase of 32% since 2013.
This reflects the broader sentiment that economic pressures are hitting young people hard.
3. Money’s Impact on Mental Health
With escalating expenses and reduced income, it's no surprise that today's young people are nearly twice as stressed as previous generations. A recent report found that 14% of Gen Zers are "extremely stressed out," compared to 8% of Millennials in 2013. Conversely, only 8% of Gen Z feel extremely confident about their finances, compared to 13% of Millennials at their age.
This isn't the first study to highlight the mental toll on Gen Z. Numerous reports have warned that young people today suffer from "money dysmorphia" and engage in "doom spending," where they spend excessively because they believe saving for the future is pointless
According to a recent analysis, Gen Z is earning significantly less than Millennials did at the same age. A study by Deloitte found that as of the last quarter of 2023, individuals aged 22 to 24 in Gen Z earned an average of $45,493, whereas Millennials at that age earned $51,825 (adjusted for inflation). This income disparity is largely attributed to Gen Z entering the workforce during a period of high inflation, which has seen a cumulative price increase of 32% since 2013.
This reflects the broader sentiment that economic pressures are hitting young people hard.
3. Money’s Impact on Mental Health
With escalating expenses and reduced income, it's no surprise that today's young people are nearly twice as stressed as previous generations. A recent report found that 14% of Gen Zers are "extremely stressed out," compared to 8% of Millennials in 2013. Conversely, only 8% of Gen Z feel extremely confident about their finances, compared to 13% of Millennials at their age.
This isn't the first study to highlight the mental toll on Gen Z. Numerous reports have warned that young people today suffer from "money dysmorphia" and engage in "doom spending," where they spend excessively because they believe saving for the future is pointless
7 Things Gen Z Must Do Now
Here are seven steps Gen Z can take right now to improve their financial situations.
1. Set SMART Goals
"Without clear objectives, it’s easy to feel lost or overwhelmed." Says Ramit Sethi, in Netflix show. Sethi recommends using the SMART goal-setting model to set Specific, Measurable, Achievable, Relevant, and Time-bound goals:
- Specific: Clearly define what you want to achieve.
- Measurable: Establish criteria to track progress.
- Achievable: Set realistic goals that are attainable.
- Relevant: Ensure the goals align with your broader financial and life objectives.
- Time-bound: Set a deadline to create a sense of urgency and accountability.
- Specific: Clearly define what you want to achieve.
- Measurable: Establish criteria to track progress.
- Achievable: Set realistic goals that are attainable.
- Relevant: Ensure the goals align with your broader financial and life objectives.
- Time-bound: Set a deadline to create a sense of urgency and accountability.
This approach offers the clarity and direction necessary for achieving meaningful progress. While it's natural to aspire to the same possessions as previous generations, it's important to remember that it took them decades to reach their level of financial stability
2. Avoid Unrealistic Comparisons
One major reason people feel financially behind is due to unrealistic comparisons. Social media often showcases idealized lifestyles that can make anyone feel inadequate.
“As social media continues to grow, people are constantly bombarded with images of others' perceived wealth and success,” noted Jane Smith, a financial advisor at XYZ Financial. “It's important to remember that everyone’s financial situation is different, and there is no universal timeline for achieving financial goals.”
“As social media continues to grow, people are constantly bombarded with images of others' perceived wealth and success,” noted Jane Smith, a financial advisor at XYZ Financial. “It's important to remember that everyone’s financial situation is different, and there is no universal timeline for achieving financial goals.”
Recognizing that personal finance is unique to each individual can help alleviate the stress of trying to meet unrealistic standards and enable a more personalized approach to financial planning.
3. Spend Less Than You Earn
To avoid accumulating credit card debt and maintain financial stability, it's crucial to spend within your means.
“The key to financial success is ensuring your expenses are lower than your income,” advises Suze Orman, a well-known financial expert.
Financial experts commonly emphasize the importance of living within your means as a foundational financial strategy. Prioritize contributing to your retirement accounts before making major purchases like a car, and focus on paying down debt before planning luxury expenses.
“The key to financial success is ensuring your expenses are lower than your income,” advises Suze Orman, a well-known financial expert.
Financial experts commonly emphasize the importance of living within your means as a foundational financial strategy. Prioritize contributing to your retirement accounts before making major purchases like a car, and focus on paying down debt before planning luxury expenses.
“Building wealth starts with spending less than you earn,” notes Dave Ramsey, a personal finance guru. “You must understand your income and manage your expenses wisely.”
Here are some strategies to help you live within your means:
- Prioritise savings first: Automatically transfer a portion of your income to savings each payday.
- Monitor your spending: Track where your money is going and adjust your spending habits as needed.
- Eliminate non-essential expenses: Regularly review your expenses and eliminate non-essential fixed costs.
Here are some strategies to help you live within your means:
- Prioritise savings first: Automatically transfer a portion of your income to savings each payday.
- Monitor your spending: Track where your money is going and adjust your spending habits as needed.
- Eliminate non-essential expenses: Regularly review your expenses and eliminate non-essential fixed costs.
4. Prevent Lifestyle Inflation
"As your income grows, it's easy to let your spending grow with it," warned Dave Ramsey, a personal finance expert. "The key is to avoid increasing your expenses just because you're earning more."
Experts frequently caution against lifestyle inflation, which occurs when spending rises in tandem with income.
Experts frequently caution against lifestyle inflation, which occurs when spending rises in tandem with income.
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Suze Orman, a financial advisor, advises, "Whenever you get a raise or a financial windfall, save a significant portion of it. Don't let your essential expenses, like housing and car payments, increase at the same rate as your income."
By preventing lifestyle inflation, you will have more funds to save and invest for the future, reducing the feeling of falling behind. While it may be tempting to indulge, it's crucial to find a balance between enjoying the present and planning for the future.
By preventing lifestyle inflation, you will have more funds to save and invest for the future, reducing the feeling of falling behind. While it may be tempting to indulge, it's crucial to find a balance between enjoying the present and planning for the future.
5. Establish an Emergency Fund
It's crucial to save money so you don’t have to rely on credit cards during challenging times. Your emergency fund can support you when unexpected expenses arise, such as a car repair or a period of unemployment.
"Everyone should aim to have an emergency fund covering three to six months of living expenses," advised Suze Orman, a personal finance expert. "Keep this money in a high-yield savings account so you’re prepared for any financial emergencies without falling into debt."
"Everyone should aim to have an emergency fund covering three to six months of living expenses," advised Suze Orman, a personal finance expert. "Keep this money in a high-yield savings account so you’re prepared for any financial emergencies without falling into debt."
By establishing an emergency fund, you create a financial safety net that allows you to handle unforeseen expenses without resorting to credit cards or loans.
6. Secure Your Financial Future
If you feel like you're falling behind financially, one of the most crucial steps you can take is to invest in your future. While retirement may seem far off, time passes quickly, and thanks to the power of compound interest, your future self will be grateful for the investments you make today.
"Start investing in your retirement as soon as possible," advises Warren Buffett. "Whether through an employer-sponsored retirement plan or an individual retirement account (IRA), the key is to begin early and contribute consistently."
"Start investing in your retirement as soon as possible," advises Warren Buffett. "Whether through an employer-sponsored retirement plan or an individual retirement account (IRA), the key is to begin early and contribute consistently."
By maximizing your retirement contributions, you establish a strong financial foundation that will benefit you in the long run.
7. Explore Innovative Ways to Build Wealth
Despite economic challenges such as high inflation and uncertainty, numerous innovations have made it easier for younger people to build wealth. Starting a side hustle or learning about investing has never been more accessible.
“Younger generations are exploring alternative paths to wealth-building that allow them to enjoy life while still achieving their financial goals,” said Rachel Cruze, a financial expert. “By embracing flexibility and innovation, they can navigate the tight financial landscape with greater confidence and resilience.”
“Younger generations are exploring alternative paths to wealth-building that allow them to enjoy life while still achieving their financial goals,” said Rachel Cruze, a financial expert. “By embracing flexibility and innovation, they can navigate the tight financial landscape with greater confidence and resilience.”
Here are some creative ways to build wealth:
- Engage in the gig economy: Explore opportunities to earn extra income through freelance work or short-term gigs.
- Turn your passions into profits: Start a side hustle based on something you love.
- Utilize budgeting apps and tools: Take advantage of technology to manage your finances more effectively.
- Learn through social media: Follow accounts and influencers who share valuable information about investing and personal finance.
- Consume positive financial content: Engage with content that offers constructive advice and inspiration for achieving your financial goals.
- Engage in the gig economy: Explore opportunities to earn extra income through freelance work or short-term gigs.
- Turn your passions into profits: Start a side hustle based on something you love.
- Utilize budgeting apps and tools: Take advantage of technology to manage your finances more effectively.
- Learn through social media: Follow accounts and influencers who share valuable information about investing and personal finance.
- Consume positive financial content: Engage with content that offers constructive advice and inspiration for achieving your financial goals.