Top 5 Financial Challenges Generation Z Will Face in the Future
The financial future for younger generations is murky, and the path to wealth is anything but secure. Millennials and Gen Zers will likely have to reckon with a declining Social Security system, the demise of company-sponsored pension plans, and increasingly volatile markets amid global challenges like climate change and political unrest.
This means that to ensure a comfortable retirement and the ability to live securely in the latter portion of life, the burden to save is entirely on the individuals themselves. For generations who are already experiencing harsh financial pressures, this is no small challenge.
Those of us who are already well-traveled on the journey to wealth have a lot to offer younger generations in terms of financial guidance and support. But first, we need to understand what it is they’re up against.
Who Is Generation Z?
Defining generational cutoff points isn’t an exact science, but most people agree that Generation Z includes those who were born between 1997 and 2012 (11 to 26 years old at the time of writing).
Known as digital natives, most members of Gen Z don’t remember the world before smartphones. They’re incredibly technologically savvy—most of them prefer to communicate digitally rather than face-to-face.
As a group, they’re the most diverse generation in the nation’s history, and they’re incredibly passionate about social and environmental issues. Among the things Generation Z cares about, racial and gender equality are at the top of the list. Gen Z is also concerned about climate change and the potential impacts their generation will have to deal with in the years to come.
And as for their financial future, they know they have challenges ahead of them, but many of them are surprisingly optimistic. They’re a generation of problem-solvers and they certainly aren’t quiet about what they need and want.
Gen Z and Financial Literacy
As digital natives, Gen Z has a plethora of financial resources available to them, and they’re taking advantage of it. From “finfluencers” (finance influencers) on their favorite social media platforms to finance-focused apps on their smartphones, Generation Z is deeply invested in their personal finance journeys.
However, Gen Z is also disillusioned with the American economic system because they don’t see themselves benefitting from it. After experiencing sudden job losses outside their control and being forced to reckon with stagnant wages amidst skyrocketing cost of living expenses, some Gen Zers don’t see the point of trying to build a stable financial future.
Economic crises have not been kind to them or the generation that preceded them. And with the instability of social safety net systems like Social Security, many are giving up on saving for their future. They simply don’t think it’s possible they’ll ever be able to save enough to live comfortably, let alone retire.
However, I believe their tenacity and penchant for social change are what’s going to help Gen Z rise above their financial challenges. They’re a generation of innovators, and they’re looking for solutions.
As self-directed investors, we know that there are investment opportunities out there far beyond what’s available in the turbulent stock markets. Our kids and grandkids are going to need this information if they’re to be able to build a successful financial future. But first, we have to show them we understand what they’re up against.
What’s Ahead for Generation Z Financially
Generation Z may have exciting opportunities ahead of them in terms of creative job prospects and entrepreneurship, but they’re also facing unprecedented challenges. Some of these most pressing challenges include:
Economic instability
High debt loads
Career obstacles
Housing affordability
Retirement pressures
1. Economic Instability
While Millennials entered the workforce amidst the turmoil of the Great Recession, Generation Z was poised to inherit a strong economy with record-low unemployment numbers. Then the Coronavirus pandemic hit, upending the country’s social, political, and economic landscapes. Suddenly, all the opportunities available to them vanished.
When the pandemic hit, Gen Z workers were among those most likely to lose their jobs or have their hours cut due to business closures and supply chain disruptions. While most have since returned to work, this generation was rightfully spooked by the pandemic-driven layoffs, reduced hours, and wage cuts they experienced. They’ve learned firsthand that even when they land a job, factors outside their control could take it away at any time.
Three years later, that economic uncertainty and the feeling of insecurity has only gained in strength. While the number of available jobs is encouraging, persistent inflation and wages that have been stagnant for decades are going to make it difficult for Gen Z to create financial security both today and for their future.
2. High Debt Loads
Prior to the pandemic, Generation Z was on track to be the most well-educated generation yet. Higher education degrees were seen as a “must-have” for members of Gen Z if they ever wanted a chance at landing a high-paying job. Unfortunately, this trajectory has since changed, as Gen Zers are now more reluctant to take on student loan debt since the pandemic.
Still, more Gen Zers currently have student debt than Millennials did at their age. 7.4 million borrowers are currently age 24 and below. Their student loan balances are also much higher. In 2022, the median value of a Gen Zer’s student loan debt was $12,800, with an average of $15,000 per borrower.
Additionally, members of Gen Z have acquired more credit card debt than any other generation since the onset of the pandemic. And inflation is making it more difficult for them to pay down their balances. High-interest debt is making it harder for this generation to jumpstart their savings from an early age and pursue other financial opportunities.
3. Career Obstacles
Gen Z workers are likely feeling a little existential dread as they wonder what the future holds for them in the workplace. As technology improves and continues to advance at an unprecedented pace, Gen Zers and younger generations may need to adapt to new industries and job roles that require unique skillsets not easily fulfilled by automation and artificial intelligence.
Furthermore, the previously mentioned stagnant wages are contributing to Gen Z burnout and apathy in the workplace. Amidst their rising financial pressures, members of Gen Z are realizing that the wages they’re earning simply aren’t keeping up with their expenses. And they’re finding it difficult to look past month-to-month, let alone 30 years into the future.
For this reason, Gen Z is looking for other ways to supplement their income. In 2022, a Zapier survey found that a whopping 59% of Gen Zers have a side hustle. And on average, they’re making nearly $10,000 a year on top of the income they earn from their main job.
As this generation finds ways to supplement their income, it’s only natural that they’ll start to gravitate toward income-replacement investments the further they get into their wealth-building journey.
4. Housing Affordability
Housing affordability is another issue that, if we don’t see changes soon, is likely to plague younger generations for years to come. According to a study completed by the World Economic Forum, “Younger generations were considerably less likely to own their home than older generations were at the same age.”
Housing inventory remains low, which is one of the major factors exacerbating the high cost of real estate property. Since the financial crisis of 2008, real estate development has lagged. Additionally, Baby Boomers are currently downsizing their homes, so there’s even more competition for smaller and midsize homes that are typically favored by younger generations.
And as the Fed raises interest rates to combat inflation, younger generations are finding it more difficult than ever to secure a mortgage. Not only are monthly mortgage payments simply out of reach, but high interest rates also increase the likelihood that rents will continue to rise. High rental costs make it even harder for Gen Zers to save enough money for a down payment—not to mention an emergency reserve to help them prepare for the true cost of homeownership.
To be sure, high housing costs are going to be a real challenge for this generation. As the cost of housing increases—for both prospective owners and long-term renters alike—Gen Z is going to feel even more strain when it comes to saving and investing money for their futures.
5. Retirement Pressures
As stated above, Generation Z is going to need to save more for retirement if they want to be able to ensure a reliable income during their golden years. Unlike the generations before them, they probably won’t be able to rely on Social Security benefits to cover a significant portion of their monthly expenses. And employer-sponsored pension plans? Those are a thing of the past.
These pressures coupled with increasing life expectancies make it imperative that members of Gen Z find ways to support themselves after their working years. But they’re already struggling to find the cash to start saving and investing now. And as we all know, the rule of compound interest states that they need to start sooner rather than later if they’re going to have a chance at building real wealth.
For those that are beginning to invest, they have decades in front of them to build wealth for retirement, so they don’t have to worry about current market volatility as much as folks who are a bit closer to retirement. But there’s no guarantee that the markets are going to perform well enough or consistently enough for Gen Z to save the amounts they need to.
Instead, they’ll probably need to rely more heavily on income-replacement assets like real estate to get them where they need to go. Interestingly enough, Gen Z is already more aware of alternative assets than many members of older generations, most of whom are more inclined to stick with the more traditional 80/20 portfolio.
Since they don’t have a lot of capital upfront to start investing in alternative assets, members of Gen Z are using inventive methods to get in on the real estate action with strategies like house-hacking and crowdfunding. All in all, Gen Z is surely fighting an uphill battle to wealth. But they’re proving that they’re capable of rising to the challenge.
How You Can Help Your Kids and Grandkids Prepare for Their Future
While the information I’ve shared in this article paints a bleak picture of the financial future of Generation Z, I think it’s important that we all understand just what our kids and grandkids are up against. Only then can we offer them the right kind of guidance that will help them overcome these seemingly insurmountable challenges.
And as you can see, self-directed investing is really their only option to create a dependable financial future. Instead of focusing solely on growth assets that leave them at the mercy of volatile markets, they need reliable income-replacement assets that they can count on to cover their future expenses.
In my opinion, the best thing you can do is to engage them in their wealth-building journey now. As a self-directed investor, you’re uniquely positioned to help the future generations in your family learn how to build wealth in a way that prepares them for what’s really ahead in the future.
So next time you schedule a meeting with me or your financial advisor to discuss your investments and your strategy, invite your kids or grandkids to attend. Give them an insider’s view into what it’s like to invest your wealth in alternative assets and make decisions for your future lifestyle.
As you endeavor to engage the younger generations in your family and excite them about building wealth, remember that they’ll learn best by watching you. To see how we can help you engage your kids and grandkids in the wealth-building journey, schedule a complimentary meeting with me today by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.