- Members of Gen Z, born between 1997 and 2012, have been hit harder by higher prices than all other age groups.
- Relief appears to be on the horizon, with some of these price increases expected to slow in the coming months.
Fresh college graduates are facing more than just trying to land their first jobs.
Here is the rental cost. And eating out with friends. And gasoline. And car insurance.
Members of Gen Z (born between 1997 and 2012) have been hit harder by inflation than any other age group, and the effects could cast a shadow over their financial health for years to come, according to studies from Moody’s Analytics and TransUnion. credit reporting. agency.
“Gen Z’s experience with inflation has been different from all other generational groups,” says Moody’s economist Matt Colyar. “It’s been hotter.”
Young adults, ages 12 to 27, are bearing the brunt of a historic price increase in recent years that has strained most Americans financially. This is because Gen Z’s income is lower because they are just entering the workforce. And they are big consumers of some of the main drivers of inflation, like housing and eating out, Colyar says.
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But relief appears to be on the horizon, with some of these price increases expected to slow in the coming months.
How much has inflation slowed down?
Headline inflation has eased significantly from a 40-year high of 9.1% in mid-2022, according to the Labor Department’s consumer price index (CPI). But after falling last year, it picked up in early 2024 and has remained at around 3.4% since the fall.
Moody’s compiles government data on the share of income each age group spends on various goods and services tracked by the Labor Department. It uses that information to come up with a generation-specific CPI that is roughly similar to the broader index.
Which generation is most affected by inflation?
Based on that generation-specific measure, annual inflation in March was about half a percentage point higher for Gen Z than for any other group — millennials, Gen X, baby boomers and the “silent” and “older” generations — a significant difference.
In addition to earning lower incomes than other age groups, young Americans buy a disproportionate share of products and services that have risen in price. For example, they spend nearly 20% of their income on rent, on average across the age group, compared with 7% for the average American, Moody’s data show.
Few members of Gen Z own their homes, meaning those not yet living with parents or other relatives are likely to be renting. Rent rose 5.4% last year and 21% since the start of 2021, the CPI shows. And housing in general has accounted for 36% of the increase in consumer prices in recent months.
Young people also spend 5.5% of their income on eating out, compared to 4.5% for the average person; 5.3% in gasoline versus an average of 3.2%; and 2.6% for auto insurance versus an average of 2.3%, Moody’s analysis shows.
Auto insurance has risen almost 23% in the past year, and young Americans typically pay higher premiums because insurance companies believe they are more likely to be involved in accidents and make bad decisions.
‘Living paycheck to paycheck’
Hannah Mains, 22, who graduated this month from Auburn University in Alabama, has two part-time jobs: a marketing manager for a staffing firm in the clothing industry and a stylist for a clothing subscription service.
But her pay for the 25 hours a week she logs is barely enough to cover her skyrocketing bills for utilities, car insurance, groceries, dining and other items, even with her parents covering the rent. for the off-campus apartment she continues to do. share it this summer. Her auto insurance premium has risen from $200 to $300 a year in recent years, she estimates.
“I still find myself living paycheck to paycheck,” Mains says, and hasn’t been able to build up any savings.
Mains, who majored in apparel merchandising and media studies, has applied to hundreds of public relations and marketing jobs, but had only a few interviews in a cold job market. New graduates are competing not only among themselves but also with laid-off workers in fields such as technology and consulting, according to a LinkedIn report.
Although she eats out with college friends three or four times a week, she gravitates toward restaurants and bars that offer special discounts.
At the end of the summer, she plans to move back with her parents to Atlanta and look for a PR or marketing job in New York City or Los Angeles. She is not sure how she will afford the astronomical rents.
“It’s definitely depressing, but it is what it is.”
What is the average credit card debt carried by Gen Z?
The extra costs Gen Zers face have caused them to rack up more credit card debt than millennials of the same age, according to a TransUnion study last month. Gen Zers ages 22 to 24 had an average credit card balance of $2,834 at the end of last year, compared to an inflation-adjusted $2,248 for millennials of the same age at the end of 2013.
And 1.6% of Gen Z cardholders were 60 or more days late on their payments at the end of 2023, vs. 1% of millennials a decade ago.
“Gen Z is struggling more than millennials did 10 years ago,” says Michele Raneri, vice president and head of U.S. research at TransUnion.
Although Gen Zers and millennials each faced a crisis — the Great Recession and the pandemic downturn, respectively — inflation has left Gen Zers more indebted, Raneri says. In 2021 and 2022, they benefited from stimulus checks related to COVID-19 and other federal aid. But that money has largely dried up, forcing many in that age group to turn to credit cards or other types of loans, she says.
The government’s financial cushion is gone, but spending may have “become a habit (they) can’t afford,” Raneri says.
Such debt can weigh on young people and affect their credit scores for years because they haven’t yet built a credit history, says Charlie Wise, TransUnion’s senior vice president and head of global research. Today’s historically high interest rates make that debt particularly burdensome, says Raneri
The outlook, however, is not all bleak for young Americans.
The average wages of Gen Z, adjusted for inflation, have been higher than those of previous generations at the same age. And they have grown faster, at least partially offsetting higher costs, Colyar says, citing Federal Reserve data. Many work in industries — such as restaurants, hotels and retail — that have raised wages significantly in response to pandemic-related labor shortages.
Also, young people tend to change jobs more often than their older colleagues to take advantage of higher growth, Colyar says.
“Gen Z went to work when there was a ‘help-seeking’ crisis,” he says.
What is the forecast for inflation in 2024?
He says the cost of services hit hardest by inflation should rise more slowly or stabilize in the coming months. Rent for new tenancies has fallen, but this change has been slow to filter down to tenants in existing tenancies. However, it should happen by the second half of the year, says Colyar.
Rising car insurance costs should also ease in the coming months, he says. New car prices have fallen recently and this should reduce the increase in insurance premiums, Colyar says.
At the same time, Gen Zers spend far less of their income on health care, an expense that is projected to increase dramatically this year.
“Relief is on the way,” says Colyar.
Paul Davidson covers the economy for USA TODAY.
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