Gen Z members (born between 1997 and 2012) have been hit harder by inflation than all other age groups and the effects could cast a shadow over their financial health for years to come, according to studies by Moody’s Analytics and TransUnion, the credit reporting agency.
“Gen Z’s experience with inflation has been different than all other generational cohorts,” says Moody’s economist Matt Colyar. “It’s been hotter.”
Freshly graduated college students are struggling with more than just trying to land their first jobs.
There’s the cost of rent. And eating out with friends. And gasoline. And car insurance
Young adults, ages 12 to 27, are bearing the brunt of a historic rise in prices over the past few years that has financially strained most Americans. That’s because Gen Z’s incomes are lower since they’re just entering the workforce. And they’re big consumers of some of the chief inflation drivers, like housing and meals out, Colyar says.
But relief appears to be on the horizon, with some of those price increases tend to slow in coming months.
Aside from earning lower incomes than other age groups, young Americans buy a disproportionate share of products and services that have increased in price. For instance, they devote nearly 20% of their income to rent compared to 7% for the average American, Moody’s data shows.
Few Gen Z members own their homes, which means those who aren’t still living with their parents or other relatives are probably renting. Rent has jumped 5.4% in the past year and 21% since early 2021, the CPI shows. And housing broadly has comprised a whopping 36% of the rise in consumer prices in recent months.
Auto insurance has leaped almost 23% in the past year, and young Americans typically pay higher premiums because insurance companies believe they’re more likely to get into accidents and make poor decisions, posing a greater risk.
Gen Z’s median inflation-adjusted wages have been higher than those of previous generations at the same age. And they’ve risen faster, at least partly offsetting the higher costs, Colyar says, citing Federal Reserve data. Many work in industries – such as restaurants, hotels, and retail- that have boosted pay sharply in response to pandemic-related labor shortages.
Also, young adults tend to switch jobs more often than older colleagues to take advantage of bigger raises, Colyar says.
“Gen Z went to work when there was a ‘help wanted’ crisis,” he says.
He says the cost of services impacted most by inflation should rise more slowly or stabilize in the coming months. Rent for new leases has dropped, but that change has been slow to filter through to tenants on existing leases. It should happen, though, by the second half of the year, Colyar says.
The rise in car insurance costs should also ease in the months ahead, he says. New car prices have dropped recently and that should moderate insurance premium hikes, Colyar says.
At the same time, Gen Zers devote much less of their income to health care, an expense that’s projected to rise dramatically this year.
