Generation Z’s savings are hit hardest by inflation, the poll said
Finn Hafemann / iStock.com
Humans saved more money than ever in the pandemic’s stimulus years, but rising prices are now forcing many to plunder the rescue funds and broods they have built – especially the young.
New GOBankingRates survey of 1,000 adults shows that more than half of those aged 18 to 24 had to use their savings to cope with the cost of rising inflation. About 52% of Gen Z had to plunder their savings to survive – the remaining generations regained 15 percentage points or more.
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If Gen Z’s savings proved at risk as prices started to rise, it is likely because youngest adults are naturally the most invested in emerging trends in work, credit, investment, and currency. Gen Z is at the forefront – and when things go wrong it can be a dangerous place for you and your money.
Meredith Lepore, personal finance expert with Credello, she saw the youngest adults fall into a trap fueled in part by the mythology of personal finance. Since bad credit card management can lead to debt, the myth says, it’s best to avoid them entirely – if you don’t have a credit card, after all, you don’t have to worry about debt.
The problem is that young consumers were flocking to alternative lending options with different risks.
“We see it a lot now because Generation Z uses BNPL instead of credit cards,” Lepore said regarding the buy now pay later.
BNPL allows buyers to stretch their purchases into smaller payments without interest and without credit checks. This can give you a false sense of confidence when making purchases that you would otherwise not be able to afford.
Lepore cited Credello’s own reports which showed that Generation Z is much more likely to use BNPL than the larger population. A generation’s distrust of banks pushed the trend away from credit cards, as did the influencers of TikTok, who have promoted BNPL since the start of the pandemic era, when the platform achieved social media dominance.
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Without traditional credit to lean on, Generation Z paid BNPL’s savings bills
When inflation forced a rise in prices, Generation Zeros were much more inclined to pay BNPL’s weekly payments, which were becoming harder and harder to follow as everything became more expensive. Many young people were shocked to learn that their credit score dropped when they missed a BNPL payment.
This, coupled with the fact that they did not build credit with the responsible use of their credit card, made traditional loans more difficult and expensive.
It is certainly possible that the shift to BNPL – and the irrational phobia about credit cards that fueled it – forced Gen Z to siphon off their savings as inflation began to rise. This moment was also a missed opportunity to get a loan when they are young.
“Paying with credit cards has many benefits, such as cash back or rewards that can be used for free travel and hotel improvements,” Lepore said. “If you use your credit card for most of your everyday purchases, such as groceries and gasoline, these rewards can really add up and give you significant benefits.”
More than half of Generation Z and millennials are now incorporating crypto into their pension funds, according to a recent study by pension fund rollover company Capitalize. Overall, these two generations account for 94% of all cryptocurrency buyers, according to Stilt.
Rising inflation coincided with the epic cryptocurrency crash that saw bitcoin’s price drop 70% from last November to the end of June. With young adults being so over-invested, it’s almost certain that at least some of the Gen Z savings drain has been spent on costly crypto moves.
The GOBankingRates survey found that Generation Zeros were much more likely than older respondents:
- Sell crypto to deal with inflation
- Buy Crypto When Prices Have Dropped
- Change your crypto strategies to mitigate the effects of inflation
- To believe that the decline will continue and that crypto is no longer a viable asset
In short, when crypto crashed, young investors were much more likely to crash with it.
“Investing in cryptocurrencies is very risky and volatile,” said Louise Elizabeth Lowe, co-founder of the crypto site and YouTube channel Every bit helps. “Your investments can go up in multiples of 2, 10, or even 100. The potential for such lucrative returns is why investing in cryptocurrencies has become so popular, especially among millennials and Gen Z. But at the same time, it can also drop to zero.”
Even the oldest generation of Zeros did not work long enough to accumulate significant savings, but their views on employment may shed light on why so many of them had to rob their savings to survive inflation.
As the Great Retirement reached its full leap in September 2021, Forbes reported that the Zer generation were leaving jobs at a much faster rate than the older demographic. In February 2022, Axios reported the same. A few months later, in May, CNBC announced that nothing had changed – the youngest employees continued to fuel a heavy rotation in the labor market.
“Gen Z and the Millennials are much more likely to join the Great Retirement than their older associates,” said Kevin Harrington, CEO Job list.
As the youngest workers, they had the lowest seniority and the most incomplete skill sets to begin with, so their positions were already at greatest risk. It is reasonable to suppose that their propensity to change jobs only made Gen Z’s fledgling workforce even more insecure – and savings became a lifeline for those who had put a bad bet on the Great Resignation.
More from GOBankingRates
Methodology: GOBankingRates surveyed 1,000 Americans 18 years and older across the country from June 22 to June 24, 2022, asking nine different questions: (1) Which element affected by inflation harmed your finances the most? (2) How did inflation affect your personal finances (select all that apply)? (3) What austerity measures are you taking to contain the impact of inflation? (Select all that match); (4) Have you dropped out of your plans or trips due to rising gas prices? (5) What worries you the most in the current economic situation? (6) How do you react to a bear market entering the stock market (any stock index or individual stocks that have fallen 20% or more from their recent highs); (7) How has the fall in the stock market affected your retirement plans? (8) How has the current decline in cryptocurrencies affected your investment strategy ?; (9) How has the current decline in cryptocurrencies affected your view of crypto as an asset? (10) What small businesses do you visit most often? (11) Have you ever considered starting a small business? (12) How do you support small businesses? (Select all that match); (13) Why do you prefer a small business to a chain or a large store? (Select all that match); (14) How has your relationship (or expenses) with small businesses changed in the last two years? and (15) How do you interact with small businesses most often? GOBankingRates used the PureSpectrum survey platform to conduct the survey.