How are Gen Zers Faring Financially?

By Lindsay Frankel
Inside Subprime: August 26, 2020

Americans born after 1996 into Generation Z should have had the benefit of a strong economy, but the pandemic has put the oldest Gen Zers in a financially precarious situation similar to what some Millennials experienced entering the workforce after the Great Recession. Often called digital natives because of their dependence on technology, Gen Zers grew up with cautionary tales about finances that make them a risk-averse generation. And due to financial literacy efforts, they’re more likely to have received financial education, although most still rely on their parents for information about money. 

In many ways, these generational differences leave Gen Zers better prepared for financial hardship than other age groups. Though the oldest Gen Zer is just 23 years old, the group is already building credit, utilizing financial institutions, and planning for retirement. Here’s what we know about Gen Z financial habits so far. 

Money stresses them out.

According to the Stress in America survey from the American Psychological Association, money was the top cited source of stress among Gen Z adults ages 18 to 21. 81 percent of these Gen Z adults said money was a significant source of stress compared to 64 percent of adults overall. 

Part of this stress may be due to a lack of awareness about how to spend and save. 69 percent of Gen Zers reported not knowing how much they should spend and how much to save, and 57 percent aren’t even sure how much they have in savings currently. Only 46 percent of the general public reported the same. 

They’re averse to debt. 

Experts say Gen Zers are conscious of debt in ways that older generations were not. Survey results from the Center for Generational Kinetics revealed that 29 percent of Gen Zers think debt should be reserved for select items, and 23 percent believe it should be avoided altogether. That’s comparable to findings for Millennials. 

That said, Gen Zers are more likely to have credit cards and auto loans than Millennials were at the same age. However, these types of debt are allowing Gen Zers to build healthy credit that could lead to lower cost home loans when they become ready for that milestone. 

They’re trying to build credit earlier. 

Overall, 66 percent of Gen Zers are credit active, meaning they’ve applied for a traditional credit product. Half of Gen Zers who are credit active have a credit card and a credit score above 660, according to a report from TransUnion. Only 39 percent of Millennials had prime credit scores at the same age. 

This is a strong predictor of financial success, given that a low credit score can end up costing consumers hundreds or thousands of dollars per year in higher interest and insurance premiums. With prime credit scores, Gen Zers will have better access to credit and achieve lower rates when applying for a home or auto loan, saving them a significant chunk of change over time. 

Most Gen Zers have bank accounts.

According to Raddon Research, 33 percent of Gen Zers have sole ownership of a bank account and another 34 percent have a joint account with a parent. Researchers said that’s higher than expected, and that more teens seem to be establishing bank accounts than previous generations. 

Gen Zers that are banked tend to have accounts at one of the largest banks, mostly because of the convenient technology these institutions offer. 44 percent of Gen Zers expect to use technological solutions in addition to traditional banking. That’s compared to 37 percent of Millennials and only 26 percent of Gen Xers. 

They’re already saving for retirement.

12 percent of Gen Z workers have already started saving for retirement, and 35 percent plan to start contributing to a retirement account in their 20s.

These are people that are 23 years old and younger, and they’re already saving for retirement,” said Jason Dorsey, president and co-founder of the Center for Generational Kinetics. “They’re doing more comparison shopping, they’re shopping more in thrift stores, they were the ones that have the emergency accounts.”

Experts also predict that Gen Z workers will be able to amass double the retirement savings that Millennials have managed to stash away, mostly due to the high student debt burden of Millennials. Fewer Gen Zers are taking on student debt, and tuition is expected to decrease due to less competition. Furthermore, college applicants are learning that they don’t need to attend the most expensive schools in order to have a successful career. 

They’re allergic to fees. 

Gen Zers report that they prefer to use accounts without overdraft fees, and they’re already using overdraft-free accounts at higher rates than other generations. Banks will be required to innovate to meet the demand, since overdraft fees are currently a large source of revenue for most banks. 

They aspire to be homeowners. 

While Millennials are delaying milestones like homeownership, Gen Zers are looking forward to it and see it as a better option than renting. The vast majority of Gen Zers (86 percent) aspire to purchase their own homes. However, they recognize barriers such as saving for a downpayment. 

While it remains to be seen whether Gen Zers will outpace Millennials in homeownership rates, 38 percent of experts agree that more Gen Zers will own home than the previous generation. That’s due to:

  • A greater desire to own
  • Less student loan debt
  • Less costly cities becoming more appealing
  • Greater supply of homes
  • New policies supporting homeownership

The pandemic will hinder their success.

Despite their ambitious goals, great credit scores, and healthy savings habits, Gen Zers are already hurting as a result of the pandemic. More than half of workers under the age of 45 have lost their jobs or had their hours cut, compared to only 26 percent of older workers. And younger Gen Zers entering the workforce during the economic downturn may have a harder time finding work and paying off their debt. This could delay Gen Zers from reaching many of their financial goals. 

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