Inflation Prompting Altered Spending Habits Among Gen Z

Inflation bites, but at least it doesn’t discriminate. It’s effects are felt by essentially everyone regardless of gender, race, religion and age.

Regarding age and inflation, the current bout of elevated prices is the first endured by millennials and Gen Z. Advisors know it and clients are learning that not only does inflation pinch retirement income, it forces clients that are nearing retirement and those actively planning for it to reassess their expectations. In other words, it’s not surprising that in 2023, investors believe they need more money to have a comfortable retirement than they did last year.

Thing is younger generations, including Gen Z, have ambitious financial objectives, including lofty retirement goals, so inflation is problematic for them just as it is for clients that are nearing or already in retirement. Fortunately, and perhaps to the surprise of advisors, younger clients are proving responsible in the face of still elevated inflation.

Gen Z Cutting Spending

While it’s probably not good news for the broader economy, advisors can take heart in knowing that the current economic environment is prompting Gen Zers to reduce spending. That’s a level of responsibility previously not assigned to that demographic and it’s highlighted in Bank of America’s annual Better Money Habits survey .

“Over the past year, nearly three out of four (73%) Gen Zers say they’ve changed their spending habits due to increased prices,” according to the survey. “Their lifestyle changes have included cooking at home more frequently (43%) rather than dining out, spending less on clothes (40%) and limiting grocery purchases to the essentials (33%). And nearly all those who adopted these new spending habits plan to maintain them over the next year (90%, 79% and 80%, respectively) – even as inflation slows and price pressures decrease.”

Additionally, 85% of respondents told Bank of America they see one or more hurdles to achieving financial success with 53% saying higher costs of living are significant headwinds.

In a display of maturity, Gen Z is figuring out that one of the easiest ways to deal with inflation and combat higher costs is to reduce spending. After all, while some so-called experts claim inflation is declining, they make that argument excluding essential goods and services, such as food, gas and rent.

“According to the Bank of America Institute, a significant gap opened in the last year between spending by younger and older generations.  According to Bank of America data regarding credit and debit card spending per household, Gen Z spending declined by over 2% between May 2022 and May 2023, while spending increased by 2.5% (Boomers) and 5% (Traditionalists),” adds the financial services firm.

Good News from the Survey

Advisors should also note that, financially speaking, Gen Z isn’t a “hot mess.” There are bright spots in the Bank of America survey, including the fact that Gen Z women are saving more than their male counterparts and 52% felling they’re on pace to reach financial goals. Those are positive points for advisors to acknowledge.

Still, this generation needs professional guidance and there’s plenty of avenues through which advisors can make positive differences in the lives of Gen Z clients.

“Over the last year, nearly four in 10 Gen Z (37%) say they’ve experienced a financial setback – such as decreased savings or additional debt – causing 27% to borrow money from friends or family. The reliance on friends and family is likely due in part to the fact that more than half (56%) say they do not have enough saved to cover three months of expenses in the event of an emergency,” concludes BofA.

Related: How Advisors Can Help Clients Right Credit Ships