Is Gen Z Facing a Financial Crisis? Here's What the Data Says

Gen Zers are feeling financial pain before they even enter the workforce.

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

Learn more: Compare Current 30-Year Mortgage Rates

As a result of rising education costs, many Gen Zers are saddled with student loans before they enter the workforce. In just over a decade, the cost of attaining a degree from a public college rose by nearly 30%, almost five times the rate of inflation. Today, Americans owe nearly $1.75 trillion in student loan debt.

Learn more: Here Are Our Best Debt Payoff Apps of 2022

Even the advice to buy an inexpensive but reliable used car doesn’t hold up. According to Kelley Blue Book, the average used car price currently exceeds $28,000, which is 42% higher than in late 2019. Across the board, necessities are outpacing inflation and earnings at an incredible rate.

Incomes falling behind

As prices jump across the board, increased incomes can supplement a hurting working class. However, according to the Bureau of Labor Statistics, earnings for Americans aged 22 to 27 increased by only 19% between 1980 and 2019. And new graduates in many industries oftentimes must accept minimum wage positions for the first few years of their careers.

To fill the gap, workers are increasingly picking up second or third jobs as part of the rising “gig economy.” Over 36% of the American workforce is engaged in the gig economy, which is estimated to have grown by 33% in 2020. The trouble with the gig economy is that many workers only work part time and are ineligible for common employer benefits, such as health insurance and retirement savings plans. So while workers are relying on part-time gigs for part or all of their income, the benefits that those gigs offer are limited.

Bridging the Gap

How are young professionals dealing with higher costs and lower incomes? The answers vary from delaying life milestones to placing bets in the stock market.

For many Gen Zers, the best fallback is family. According to Pew Research, an estimated 52% of young professionals now live with their parents, the highest percentage since the Great Depression. While the Coronavirus pandemic has likely increased those numbers, previous studies through the 2010s found similarly high results. Without family to rely on, young professionals in many cities across the U.S. and Canada are facing a housing crisis. In Toronto, even workers earning six figures are being priced out of their communities.

The mounting student loan crisis has caught the attention of legislators, who noticed that a downturn in retirement savings and earning an employer match was due to student loan payments. The SECURE Act 2.0 includes a provision to receive 401(k) matching on student loan debt payments, but skeptics question the effectiveness of the measure.

Finally, the rise of long-shot investments, such as cryptocurrencies and meme stocks, could be rooted in more than just retail enthusiasm. These risky bets are believed to be linked to financial stress, as well as a hope to find alternative income sources by investing. Although staunch supporters indicate a desire to “stick it to the man,” whether that be hedge funds or centralized banks, an alternate read on the situation is one of desperation in the face of economic headwinds.

No matter how Gen Zers and other young professionals are weathering the storm, it seems clear that when expenses rise and incomes fail to keep up, the newest generation in the workforce is the most vulnerable.