Gen Z, born between 1997 and 2012, have had to contend with pandemic disruptions and shutdowns, inflation spiking to 40-year highs, and interest rates surging to 2007 levels in recent years — with less time than their predecessors to build up resources to ride out the storms.
Many Zoomers feel that having kids or buying a home is out of reach given the increased expense of everyday living, the brutal cost of childcare, and the painful combination of near-record home prices and much higher mortgage rates. Stocks are also trading close to record highs, depressing long-term returns for new investors.
But things might not be as bad for Gen Z as they seem. A recent Federal Reserve working paper found that the median 25-year-old in the US earns a real household income of more than $40,000 after taxes and government transfers. That's a higher average sum than any of the past six generations earned at that age.
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Moreover, a Redfin study last year found that 30% of 25-year-olds owned their home in 2022, compared to 28% of millennials and 27% of Gen X at that age. Baby boomers came out on top with 32% ownership.
Members of Gen Z are projected to spend more on housing costs like rent, mortgages, insurance, and utilities after inflation between the ages of 22 and 30 than millennials did, a recent RentCafe analysis found.
Yet Gen Z's typically higher earnings mean they'll only spend an estimated 30% of their income on housing compared to 36% for millennials.
It's a similar story if you include college loans. On average, under-25s spent 43% of their after-tax income on housing and education (including interest payments on student debt) in 2022 — less than what the typical under-25 paid between 1989 and 2019, per The Economist.
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Success may be short-lived
It's worth digging into why Gen Z is doing well financially. They may be better educated and qualified than previous generations. They've also enjoyed above-average wage growth and high employment levels in recent years, reflecting in part the labor shortages caused by the pandemic, the pay increases and bonuses offered by desperate employers, and historically low unemployment overall.
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Stimulus payments, temporary and permanent relief from student-loan repayments, and saving on rent by living with family during lockdowns also helped the generation amass cash for down payments and other expenses.
The latter trend has continued with the Fed paper finding that more than 30% of Gen Zeds aged 24 live in the homes of their parents or their spouse's parents, versus about 15% of boomers when they were that age.
Gen Z's relatively high homeownership rate might also be less impressive than it seems. Young people tend to buy smaller, cheaper houses, as they're usually more flexible regarding how many rooms they need and where they're located if they don't have kids or a commute.
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Rock-bottom mortgage rates before 2022 undoubtedly helped too, and now they've risen sharply it'll be far tougher for younger members of the cohort to afford their own place.
