Is Gen Z facing a financial crisis?  Here's what the data says
Is Gen Z facing a financial crisis?  Here’s what the data says
A worried young adult uses a laptop at home.

Image source: Getty Images

Gen Z are experiencing financial hardship even before entering the workforce.

Key points

  • Rising costs are hitting young professionals on all fronts, from housing to education to transportation.
  • The starting income and the benefits that come with it don’t follow.
  • Generation Z gets away with it by delaying life stages and giving up on saving for retirement.

It’s no secret that the housing market is on fire. Homebuyers are paying an average of 30% more on their monthly mortgage payments this year than last year. And that’s assuming you can find a home, with just a median 38-day on-sale period for a home on the market, according to FRED Economic Data. While stories of cash-only offers and inspection waivers abound, 20-somethings might be stuck in renting instead. Unfortunately, according to iProperty Management, the average rent price in the United States is at an all-time high and has consistently outpaced inflation over the past decade. Nationally, the ratio of rent to income increased by more than 24%.

Learn more: Compare current 30-year mortgage rates

Due to the rising cost of education, many Gen Zers struggle with student loans before entering the workforce. In just over a decade, the cost of graduating from a public college has risen nearly 30%, nearly five times the rate of inflation. Today, Americans owe nearly $1.75 trillion in student loans.

Learn more: Here are our best debt repayment apps of 2022

Even the advice to buy a cheap but reliable used car does not hold. According to Kelley Blue Book, the average used car price is currently over $28,000, 42% higher than at the end of 2019. Overall, necessities are outpacing inflation and incomes at an incredible rate .

Lagging income

As prices rise everywhere, rising incomes can supplement a struggling working class. However, according to the Bureau of Labor Statistics, incomes for Americans aged 22 to 27 grew only 19% between 1980 and 2019. And new graduates from many industries often have to take minimum-wage positions during the first few years. years of their career.

To fill the void, workers are increasingly taking on second or third jobs as part of the rise of the “gig economy”. Over 36% of the US workforce is engaged in the gig economy, which is estimated to have grown 33% in 2020. The problem with the gig economy is that many workers only work part-time and are not eligible for common employer benefits, such as health insurance and retirement savings plans. So while workers rely on part-time gigs for some or all of their income, the benefits these gigs provide are limited.

Bridging the gap

How do young professionals cope with higher costs and lower earnings? The answers vary from delaying life milestones to placing bets on the stock market.

For many Gen Zers, the best fallback is family. According to Pew Research, about 52% of young professionals now live with their parents, the highest percentage since the Great Depression. While the coronavirus pandemic likely boosted those numbers, earlier studies in the 2010s found similarly high results. Without family to rely on, young professionals in many cities across the United States and Canada face a housing crisis. In Toronto, even workers earning six figures are excluded from their communities.

The growing student loan crisis caught the attention of lawmakers, who noted that a decline in retirement savings and getting employer match was due to student loan repayments. The SECURE 2.0 Act includes a provision to receive 401(k) consideration on student debt repayments, but skeptics question the measure’s effectiveness.

Finally, the rise of long-term investments, such as cryptocurrencies and meme stocks, may be rooted in more than retail enthusiasm. These risky bets are believed to be linked to financial stress, as well as the hope of finding alternative sources of income by investing. Although strong proponents point to a desire to “stick to the man,” whether it be hedge funds or centralized banks, an alternative reading of the situation is one of desperation in the face of economic headwinds.

Regardless of how Gen Z and other young professionals weather the storm, it seems clear that when expenses rise and incomes do not follow, the new generation of the workforce is the most vulnerable.

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