Gen Z Faces Financial Challenges. These Three Steps Could Help

Key Points:

    – Gen Z spends more of their income on essentials like housing and insurance.

    – Many are feeling financial pressure, with 1 in 7 Gen Zers maxing out their credit cards.

    – Budgeting apps can help you gain control of your finances and work toward financial       
      goals.

Many people are facing financial struggles right now. Credit card debt is rising, and savings account balances are falling. While inflation has slowed, it’s still affecting everyone’s wallets. Sadly, Gen Z is feeling these challenges more than other generations in the post-pandemic economy.

According to a study by *The Washington Post*, Gen Z is spending much more on essentials than previous generations did at their age. These essentials include housing, insurance, and other living expenses.

Gen Z’s Finances Are Struggling from All Angles

The analysis from *The Washington Post* reveals that inflation is hitting Gen Z particularly hard. Born between 1997 and 2012, this generation spends a larger portion of their income on basic needs. Instead of building the financial security that allows them to buy homes, save, or invest, they’re burdened with expenses that will take years to overcome.

For example, housing costs alone are 31% higher for Gen Z than they were a decade ago, even when adjusted for inflation. Health insurance costs have risen by 46%. While wages have gone up, they haven’t kept pace with the increased cost of living. While millennials are facing their own struggles, the financial challenges for Gen Z are even greater.

These challenges are reflected in the high levels of debt carried by Gen Z. The report shows that 1 in 7 members of this generation have maxed out their credit cards. With credit card interest rates often around 20% to 25%, paying off this debt can seem impossible.


How You Can Take Charge of Your Finances

One problem for Gen Z is that much of the traditional financial advice doesn’t address their specific challenges. It’s hard to save for retirement when rent is barely affordable.

However, there is still useful financial advice to consider, especially when it comes to managing your spending and handling debt.

1. Track Your Spending

   No matter how much or how little money you have, keeping track of your spending is a powerful tool. Use a budgeting app to understand where your money is going. It might be reassuring to know that, according to a U.K. bank study, Gen Z is more likely to use a budget than any other generation.

   A budget allows you to make informed decisions. For example, if saving for a car is more important to you than buying coffee or paying for a subscription, you can adjust your spending. On the other hand, if the cost of a latte is worth the joy it brings you, then you can prioritize that.

   Budgeting isn’t about cutting out everything. It’s about making sure you are aware of your spending and living within your means.

2. Set Financial Goals 

   Once you know how you spend your money, set some realistic financial goals. If you don’t have emergency savings—money for unexpected situations—you can make that a priority. Decide how much you can set aside each month, and automate that transfer to a savings account. Even small amounts will add up over time.

   The key to setting financial goals is to make them achievable and to reward yourself when you meet them. For instance, saving $50 a month might be a reasonable goal. Celebrate each milestone by doing something low-cost that brings you joy. You could also share your progress with friends to encourage each other.

3. Pay Off Debt

   Carrying credit card debt can feel like swimming with a heavy weight tied to your legs. According to a study by TransUnion, the average credit card balance for 22- to 24-year-olds is $2,834. More and more Gen Zers are falling behind on payments.

   There are a few strategies to pay down debt. The “debt snowball” method involves paying off the smallest debts first to gain momentum. The “debt avalanche” method focuses on the debt with the highest interest rate, as that will save you the most money over time.

   Whatever strategy you choose, the key is to put as much money as you can toward paying off your debt. You might need to take on a side job, sell things you don’t need, or cut back on spending.

   These adjustments don’t have to be permanent, but the sooner you pay off high-interest debt, the less you’ll owe in interest.

Takeaway

High housing and living costs can be overwhelming, and it may not feel fair that your generation is facing more challenges than those before you. Sometimes, however, we have to work with the situation we’re given, even if it seems unfair.

Focus on the steps you can take to strengthen your financial future. While it’s not easy, using a budget to ensure you’re spending less than you earn will help you in the long run.

If you can master the art of living within your means now, it will benefit you for the rest of your life. You’ll also be in a stronger financial position than those from other generations who never learned how to manage their money this way.

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