The current inflationary environment has been difficult for everybody. But it appears to be particularly hard for Generation Z, which is facing elevated consumer prices for the first time in their lives.
According to a newly released survey by Bank of America (NYSE:BAC), Gen Z, the people born in the 15 years between 1997 and 2012, are making some radical lifestyle changes as they grapple with higher consumer prices and elevated interest rates used to lower inflation. For this cohort, most of whom are in their 20s, the current environment has forced them to make difficult changes as they adapt for success.
For most people who came of age since the turn of the century, inflation has largely been negligible and held in a range of 1% to 3% for most of their lives. That changed over the last 18 months, with inflation in the U.S. peaking at 9.1% in June 2022. As a result, the U.S. Federal Reserve has raised its benchmark federal funds interest rate to a range of 5.25% to 5.50%, its highest level in 22 years.
Consequently, more than half (53%) of Gen Z respondents to Bank of America’s annual Better Money Habits survey cited the rising cost of living as a barrier to them accomplishing their financial goals. Here is a summary of the changes being made by the generation that has recently left college and is entering the work world at this difficult time.
Cooking at Home
Nearly three-quarters (73%) of Gen Zers polled by Bank of America said they’ve had to cut back spending over the last year due to higher prices. And the main area where they’ve cut back has been on dining out. Nearly half (43%) of people said they are cooking at home more frequently to save money. Another 40% said they are spending less on clothes, and 33% are limiting groceries to essential items only.
On the positive side, Generation Z appears to be better at reigning in their spending than older generations. The survey found that Gen Zers cut back their overall spending by more than 2% between May 2022 and May 2023. In that same period, spending increased by 2.5% among the Baby Boom generation (born 1946 to 1964) and 5% among Generation X (born 1965 to 1980). However, reducing spending appears to have come at the expense of savings, with 37% of Gen Zers saying they’ve lowered their savings rate or taken on additional debt to cope with inflation and rising rates.
The Bank of Mom and Dad
The inability to save money has resulted in more than half (56%) of Generation Z survey respondents saying they don’t have enough money saved to cover three months of expenses in the event of an emergency. As a result, more than a quarter (27%) have had to borrow money from family and friends in the past year, with parents being the main source of loans. Still, the majority of Gen Zers say they feel confident in handling everyday financial activities, with 69% saying they can manage their daily expenses.
When it comes to investing, things get more complicated. Less than half (45%) of people in the Gen Z cohort say they feel confident saving for retirement, and only 29% feel secure investing in the stock market right now. Fewer Gen Z women are investing than men. Only 11% of women are investing compared to 18% of men who say they are putting capital to work in the market. Overall confidence in the economy is declining. Only 24% of survey respondents say they are confident the U.S. economy will improve. That’s down from 41% in 2021.
Gen Z, Inflation and What’s Next
Bank of America’s Better Money Habits survey provides a nice snapshot of how Generation Z is coping in the current environment of high inflation and high interest rates. While some of the findings are disheartening, they nevertheless show that the age group is adapting to their present reality and coping with the hand they’ve been dealt.
Long-term, Gen Zers should be just fine.
On the date of publication, Joel Baglole held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
