As Gen Z, the generation born between the mid-1990s and the early 2010s, enters adulthood, they bring with them a positive financial outlook. Unlike their predecessors, they exude optimism, with many reporting improved financial situations and a strong belief in their ability to achieve their retirement savings goals.
But amidst this optimism, the question arises: Is their aspiration rooted in reality, or is it a product of a buoyant job market with an uncertain future?
Key takeaways
- 75 percent of employed Gen Z workers received a raise or found a better-paying job in the 12 months leading up to October 2023, a Bankrate survey published in November found.
- A majority of Gen Z, 58 percent, felt optimistic about their financial future heading into 2024, according to a Bankrate poll.
- However, this optimism seems out of step with how Gen Zers say they’re saving for retirement. Gen Z is the most likely generation to say they are saving less money compared to last year at 17 percent, and that they didn’t save for retirement this year or last year, at 29 percent, a Bankrate retirement survey found.
- 29 percent of Gen Z didn’t contribute to their retirement account in 2023 or 2023, the Bankrate poll found.
- Gen Z, more than any other age group, think they’d need to be a millionaire to be successful, at 16 percent, according to a May 2024 Bankrate survey.
Benefiting from a strong labor market
Gen Z’s optimism is evident despite financial challenges such as student loan debt and an unaffordable housing market.
Bankrate surveys reveal a positive trend: 37 percent of Gen Z respondents reported an improvement in their finances since 2020, with 58 percent believing their situation will further improve in 2024, according to a recent poll.
This confidence can be attributed to the robust job market, where early career adults, particularly Gen Z, have seen significant wage growth compared to other demographics.
“The surprising strength of the job market and numerous job opportunities have provided consistent paychecks and advancement prospects,” says Greg McBride, Bankrate’s chief financial analyst.
Federal Reserve data indicates that wages for Gen Z workers have grown significantly faster than older workers, with a 13 percent increase for those aged 16-24 compared to 4 percent for those aged 55 and older during the post-pandemic boom.
“The early career years often experience rapid wage growth as individuals transition from part-time entry-level roles to full-time positions, acquiring education, credentials, and skills along the way,” explains McBride.
In fact, a separate Bankrate survey published in November found that 75 percent of employed Gen Zers received a raise or secured a better-paying job in the past 12 months leading up to October 2023.
Gen Z is also embracing financial education differently than previous generations, engaging with financial content on social media, exploring online investment resources, and openly discussing money matters.
Observing others achieve financial milestones can inspire their own financial ambitions. This enhanced financial literacy equips them with the tools to navigate personal finance complexities effectively.
But is the future really so bright?
While Gen Z’s financial optimism is encouraging, it must be tempered with a realistic understanding of the economic landscape and their own financial circumstances.
Despite the current job market favoring Gen Z, the long-term sustainability remains uncertain. Economic cycles are inevitable, and despite current growth, challenges persist for younger generations.
Student loan debt, a prevalent issue, strains finances for many. A majority of Gen Z borrowers, 74 percent, have postponed critical financial decisions due to their student loan obligations, according to a December 2023 Bankrate survey.
Inflation erodes the purchasing power of savings over time, while market volatility and potential job market fluctuations pose additional concerns.
Moreover, an increasing number of young adults between 25-34 are residing with their parents, as indicated by Census Bureau data, reflecting financial dependence on parental support.
Gen Z’s vulnerability to financial downturns is concerning, with nearly 18 percent lacking emergency savings to cushion against job loss or unexpected expenses, according to a February Bankrate poll.
“While the current job market appears robust, it may not remain so indefinitely,” warns Hanna Horvath, a certified financial planner and senior editor at Bankrate. “Having financial reserves to cover unforeseen circumstances is crucial.”
Additionally, the escalating cost of living, particularly housing expenses, may diminish the impact of Gen Z’s substantial salaries.