Millennials, Gen Z getting used to living on a financial cliff

Young adults’ wealth is growing, but they’re still living and spending in the here and now. Many feel they don’t have a choice.

The net worth of Americans ages 18-39 surged by 80% from the start of 2019 to the third quarter of last year, Federal Reserve Bank of New York research shows, blowing past the rates for older generations.

But much of the gains are from investments that climbed alongside stock markets and largely don’t translate into disposable income. And while many millennials (ages 28-43, according to Pew Research) — and plenty of their Gen Z near-peers (12-27) — are pulling in bigger paychecks, they’re still pumping that cash into pricier everyday expenses, from essentials like rent to luxuries like leisure travel.

“We’re the generations that got stuck between a rock and a hard place,” said Hala Easmael, a 32-year-old pharmacy technician in Philadelphia. After her cohort came of age between two recessions, a pandemic and crushing student loan debt, “we want to enjoy our lives, but we’re always waiting for the shoe to drop,” she said.

Easmael earned her masters in biochemistry and biomedical sciences in 2020 and took a job making around $100,000 annually as an epidemiologist for the state of New Jersey. But after two years in the role and with inflation then hovering near 40-year highs, she left her job to pursue a pharmacy doctorate, hoping to lift her earning prospects.

While she’s saving on rent by living with her parents, her full academic scholarship doesn’t make up for a $70,000 pay cut working part time as a nanny and hospital pharmacy tech while also interning at Walgreens.

“There’s absolutely no way you can be OK with one job,” said Easmael, who said she still contributes at least 3% of her wages to her 401(k) even as her savings have “dwindled drastically.”

In a CNBC survey of 18-to-34-year-olds last month, 42% said they’re earning more than they were a year ago, versus 27% making less. Yet nearly half said they couldn’t cover more than one month’s expenses if unemployed, and only 11% could do so for a year. Just 32% of Gen Zers and 37% of millennials are comfortable with their emergency savings, a recent Bankrate report found, though their Gen X counterparts felt only slightly better (38%).

Despite her financial pressures, Easmael still spends $300 to $400 a month on fashion, after a 100-pound weight loss boosted her view that “when you look good, you feel good.”

Many young adults are making their own similar calculations about how and when to spend versus save, experts say.

“People who have had to postpone things that they want to do may have a mindset, at this point, that they’re willing to assume the risks to make some of those things finally happen,” said Kevin Mahoney, a millennial-focused certified financial planner in Washington, D.C.

That mentality isn’t exclusive to young people. A “revenge spending” bonanza driven by FOMO, stimulus checks and built-up savings helped power the post-pandemic recovery, and consumer spending has kept chugging above expectations despite higher prices.

But several years out of Covid lockdowns, younger Americans’ outlays on things like travel, recreation and dining out have been outpacing their older peers’ even as the economy slows. As of last summer, the average Gen Zer or millennial was dropping over $400 a month on nonessentials, compared to about $250 for Gen Xers and less than $200 for baby boomers, a Morning Consult report found.

Hence the flurry of headlines around “doom spending,” in which consumers (mostly younger ones) purportedly shop with abandon to soothe anxieties from economic, environmental and geopolitical forces they can’t control. A chorus of scolds has risen in response, from TikTokers warning each other against torching paychecks on extravagances to others promoting “loud budgeting” — declining invitations to spend money and telling friends why.

But as Rue Crowder sees it, “if you go to a dark place, you can stay there. I try to live in the now.”

Tight finances didn’t stop the 34-year-old Houston resident from joining his friends on a cruise to Ensenada, Mexico, last fall, nor from opening a credit card to help finance it.

“As an entrepreneur, it makes it a little easier to take a leap of faith, because you always have to,” said Crowder, who does digital marketing for websites and content creators and previously owned an online men’s underwear shop. Last year he got his commercial driver’s license so he’ll have the option to start truck hauling to increase his earnings.

Millennials’ share of bank card balances surpassed baby boomers’ for the first time in 2023, according to TransUnion. That’s partly because younger consumers, like those who preceded them, are building and using more credit as they get older. But the combination of high inflation and high rates means they’re doing so in a vastly different climate and with steeper consequences, said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.

“Those two things together are making it harder on young people today than it did even three years ago,” she said. “They’re not able to use the card as a utility. They use it thinking they’re going to use it today and I’ll pay it off in like three months” — after racking up interest fees.

Delinquencies for balances more than 90 days past due rose 2.6% across all age groups from the fourth quarter of 2022 to the same period last year, TransUnion found, the highest level in a decade.

Even high-earning young adults say devoting large chunks of their growing incomes to near-term expenses makes it hard to plan ahead.

Mohit Singla, 33, became a senior director at a biotech firm in September, with a 20% pay bump that brought his and his wife’s combined annual income close to $500,000. But a new baby arrived in December, and the rent for their two-bedroom unit in Jersey City, New Jersey, has jumped to $5,500 from $3,700 three years ago.

They would have bought a house and maybe a car as well “if the economy had been different,” Singla said. “We still can, but it doesn’t make sense” with elevated mortgage rates, he said.

About 18% of millennials and 12% of Gen Zers said in a September Redfin survey that they believe they’ll never own a home. The top reason was affordability. Median home sale prices are 30% higher than at the beginning of 2019, and savings that some would’ve put toward down payments are now being spent elsewhere.

Fine dining is the one indulgence Singla and his wife have agreed to hold on to, spending no more than $200 on an upscale meal every other weekend.

Despite wealth gains, young adults’ financial pessimism has encouraged many to spend in ways that make them happy now, said Kyla Scanlon, author of “In This Economy? How Money & Markets Really Work.”

“People are just exhausted, and so if you’re asking them to think five to 10 years in the future, well I can barely think about tomorrow,” she said. In an Intuit survey last month, two-thirds of Gen Zers said they weren’t confident they’d ever afford to retire, and nearly three-quarters hesitated to set long-term goals.

Singla, a millennial, doesn’t feel much more certain about what steps to take. “If I had to leave my job and take a break or take a vacation, I used to feel comfortable we could do that,” he said. Now, “everything feels like a splurge.”

Crowder, for his part, doesn’t see himself on a nihilistic joyride. He wants to get better at budgeting, but he said he’s determined to be content after a run of financial hardship during the pandemic — something many other Black Americans experienced, too.

Before moving to Houston, Crowder was sleeping in the living room of his mother’s two-bedroom Nashville-area apartment. When her landlord announced plans to renovate and hike her rent to $1,000 a month from $600, she moved elsewhere and he struck out to explore another city, he said.

The Biden administration has pushed to narrow racial gaps in employment, homeownership and other measures. But Black Americans’ average real wealth, across all age groups, has yet to recover to 2019 levels, New York Fed researchers found — even as white wealth growth exceeded that of Black and Hispanic Americans by 30 and 9 percentage points, respectively, between the start of 2019 and the third quarter last year.

Crowder remains upbeat, though. He pays about $140 a week for a room in an eight-bedroom home he found listed on PadSplit, keeping his living costs down. While his credit score is low and his savings have shrunk to $1,000 in the last couple years, he said his debts total only around $1,200, all of it on credit cards.

“I already believe I’m wealthy,” he said.