In a recent report by Bank of America, it was revealed that almost half of Gen Zers, between the ages of 18 and 27, rely on financial assistance from their parents. This indicates a significant trend among young adults who are struggling to keep up with the high cost of living. The report highlighted that 52% of Gen Zers feel that they do not earn enough money to live the life they desire, with day-to-day expenses posing a major barrier to their financial success.
The high cost of living is undeniably impacting Gen Z, as stated by Holly O’Neill, president of retail banking at Bank of America. Inflation has led to higher prices for essentials such as food, gas, and housing, creating additional financial challenges for young adults. Not only do Gen Zers earn lower wages compared to their parents’ earnings at a similar age, but they also carry larger student loan balances, further adding to their financial burdens.
Reports indicate that Gen Zers are spending significantly more on necessities than young adults did a decade ago, contributing to higher levels of debt. Approximately 15% of Gen Zers have maxed out their credit cards, putting them at risk of falling behind on payments, which is a concerning trend. The New York Fed reported in May that delinquency rates are on the rise, pointing to increased stress among certain segments of the population.
Homeownership has historically been a key tool for wealth creation, but many Gen Zers have been priced out of the housing market, making it difficult for them to achieve the same level of financial security as previous generations. Brett House, an economics professor at Columbia Business School, highlighted that this is a significant challenge for wealth accumulation among Gen Z.
According to Bank of America, housing is one of the most significant expenses that young adults today require assistance with. A majority of Gen Zers do not pay for their own housing, further emphasizing the financial strain they face. Experts recommend that individuals spend no more than 30% of their take-home pay on housing, but many young adults are spending far more than that, with two-thirds putting more than 30% of their paycheck towards housing expenses.
To address these financial challenges, experts suggest following a structured approach to budgeting and saving. Holly O’Neill advises her own Gen Z children to follow the 50-30-20 rule, which involves allocating 50% of income towards necessities, 30% towards discretionary spending, and 20% towards savings. This disciplined approach can help young adults better manage their finances and work towards financial stability.
Overall Financial Insecurity
The struggles faced by Gen Z are not isolated, as most Americans believe they do not earn enough to live the life they desire. A report by Bankrate revealed that just 25% of all adults feel completely financially secure, with inflation, housing costs, and college affordability posing significant obstacles to financial security. Americans perceive the need to earn an average of $186,000 to live comfortably, highlighting the disconnect between income levels and financial aspirations.
Generation Z faces unique financial challenges in a world characterized by high living costs, increasing debt burdens, and limited wealth accumulation opportunities. By adopting prudent financial management practices and seeking support from family and experts, young adults can navigate through these challenges and work towards a more secure financial future.