4 Biggest Financial Hurdles for Gen Z That No One Else Has Faced
Gen Z is growing up, graduating and starting careers amid the pandemic, which has had profound effects on the labor market and the economy at large. As a result, Gen Z is now facing some major financial hurdles unique to this generation.
“Gen Z has been hit harder by the financial effects of the COVID-19 pandemic than older generations,” said Andrew Latham, managing editor of SuperMoney. “Seven out of 10 have had to make adjustments due to pandemic-related financial strain. They face crushing student debt, entered the workplace during a global pandemic-induced recession and shouldered the largest financial vulnerability increase. In addition, Gen Z members were more likely to borrow money and move to more affordable housing because of the pandemic than any other generation.”
I chatted with experts about these financial obstacles and more, plus how Gen Z can get past their unique hurdles.
Gen Z Is Entering an Unusually Tough Job Market
Due to the pandemic, securing a job — especially a well-paying one — is difficult for members of Gen Z who are just entering the workforce.
“Many are graduating with student debt, little to no savings and, of course, limited work experience in an economy that is pulling back on their hiring and/or spending, as well as hiring overqualified people for entry-level positions that were once reserved for recent graduates,” said Brian Hamilton, CEO of One. “Securing a well-paying job is mostly reserved for the lucky and well-connected.”
Difficulty obtaining a job that pays well is a common fear among many soon-to-be and recent graduates.
“We recently conducted a survey on the career outlook of more than 15,000 current university students and recent graduates (ages 18-25) from around the globe, and when asked their biggest fears regarding career paths, students’ top concern is low pay in their preferred sector (26%),” said Peter Watkins, who leads the University Affiliation Program at CFA Institute in EMEA.
This has made many unsure of their career paths.
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“Many people faced hurdles during this past year, and the pandemic wasn’t easy on most — especially young adults,” said Kayla Kilbride a.k.a. @girlstalkstocks. “Older Gen Z kids who are new to the workforce were forced to re-evaluate their careers so early on.”
This has also affected members of Gen Z who have not yet graduated.
“Younger members of Gen Z still in high school have also been impacted, with the Pew Research Center finding that teen summer employment hit its lowest point since the Great Recession in 2020,” said Ashley Tran, team leader, investment solutions at Fidelity Investments.
However, Kilbride believes there are some silver linings to the challenging job market.
“Gen Z is being challenged to think differently during one of the most critical times of our lives,” she said. “I feel this is an opportunity for us to redefine success without the pressure from everyone around us making it feel like we should have already had things figured out.”
Ella Gupta, Greenlight ambassador and Gen Z financial expert, also sees some positives in this situation.
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“While the oldest members of the generation undeniably felt pain as they entered a tough job market, the pandemic fortuitously came at a time when the majority of Gen Z was young and could learn from the crisis rather than be financially derailed,” she said. “The pandemic reinforced the importance of a well-developed financial safety net. I highly recommend that all young people start now in building an emergency fund. It’s also critical to invest in yourself through education — developing financial literacy is key to achieving financial success.”
Expenses Are at an All-Time High
Gen Z entered “a working world where everything seems to be inflated except for salaries,” said Chris Josephs, co-founder at Iris. “Rents, especially in the large cities, car prices, etc. all have increased over the past year while the salaries for first-year employment has stayed stagnant. Coupled with student loans, I believe Gen Z will have to be much much more on top of their expenses compared to previous generations.”
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This means sticking to a budget and establishing good credit early on.
“It is crucial that they continue to assess their finances and create a budget that can keep their spending on track,” said Rod Griffin, senior director of public education and advocacy at Experian. “As they enter the credit ecosystem, they should seek information from expert sources about how credit works, why it is important and how to maintain a good credit score.”
In addition, Deacon Hayes, founder of WellKeptWallet.com and author of “You Can Retire Early!,” recommends that members of Gen Z start investing ASAP.
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“To combat inflation, after saving for an emergency fund, try not to keep a lot of money saved in cash,” he said. “Instead, look for investments that offer a larger rate of return than a savings account. For example, investing in mutual funds typically gives you the best chance of growing your money faster than inflation can take its value away.”
Inflation Could Derail Gen Z’s Investment Returns
Although Gen Z is wise to invest, they may not get to experience the high returns of previous generations.
“Economists are projecting a lower rate of returns on stocks and bonds for Gen Z, mostly due to the threat of inflation,” said Hana Ben-Shabat, CEO of Gen Z Planet.
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On the plus side, Gen Z is investing earlier than previous generations, which gives them more time to gain experience with this wealth-building tool.
“Making short-term investments in stocks has been an area where Gen Z-ers are active,” Ben-Shabat said. “‘Meme stocks’ have had their headlines during the pandemic — but I don’t recommend this risky strategy to everyone.”
Social Security May Be Depleted by the Time Gen Z Retires
“Given the likely erosion of government programs like Social Security, Gen Z will need to take greater responsibility for the resources they will need in retirement,” said Ruby Walia, senior advisor for digital banking at Mobiquity. “They will need to be proactive about saving and investing and make good spending choices.”
One way Gen Z is combatting the lack of a traditional path to retirement is by developing multiple income streams early on.
“As opposed to previous generations who viewed their jobs as the main source of income, Gen Z-ers believe that they have to build multiple sources of income to get ahead,” Ben-Shabat said. “As teens, Gen Z-ers have become known for their entrepreneurial spirit and ‘side-hustles,’ ventures that have enabled them to earn more while studying or working in more traditional jobs.”
In addition, Gen Z views owning real estate — a valuable asset in retirement — more favorably than the previous generation.
“Eight-seven percent of Gen Z view homeownership favorably, compared to 63% of millennials, and 30% of those ages 18 and above are saving money for this purpose,” Ben-Shabat said.
Gabrielle Olya contributed to the reporting for this article.
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