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Report Finds Nearly Half of Gen Zers Rely on Financial Support from Parents
Today, 46% of Gen Zers rely on financial assistance from their family, according to a new report from Bank of America. Inflation’s recent surge, combined with specific challenges related to housing costs and college affordability, are largely to blame. To cope with the high cost of living, many young adults turn to a likely safety net: their parents. Nearly half, or 46%, of Gen Zers between the ages of 18 and 27 depend on family financial assistance, according to the report. Moreover, 52% of Gen Zers said they don’t make enough money to live the life they want, citing day-to-day expenses as a significant barrier to their financial success.
“The high cost of living is certainly impacting Gen Z,” said Holly O’Neill, president of retail banking at Bank of America. The financial institution polled more than 1,000 Gen Z adults in April and May. Many consumers feel strained by higher prices, most notably for food, gas, and housing. However, those just starting out face additional financial challenges. Not only are their wages lower than their parents’ earnings when they were in their 20s and 30s, after adjusting for inflation, but they are also carrying larger student loan balances. Even compared with millennials, Gen Zers are spending significantly more on necessities than young adults did a decade ago, other reports show.
Gen Zers also have the debt to prove their financial strain. Roughly 15% of Gen Zers have maxed out their credit cards and are at risk of falling behind on payments, more so than any other generation, according to a report by the New York Fed in May. “What delinquency rates are showing is that there is increased stress among some segments of the population,” the New York Fed researchers noted. This increased financial stress highlights the broader economic challenges facing young adults today, particularly in managing debt and day-to-day expenses.
In the years since the COVID-19 pandemic, homeownership has been one of the greatest tools of wealth creation. However, those who have been priced out of the housing market have disproportionately struggled to achieve the same level of financial security, according to Brett House, an economics professor at Columbia Business School. “That is a massive challenge for wealth accumulation among Gen Z,” he said. Second only to food and groceries, housing is the expense most young adults today need help with, Bank of America also found. “The high cost of housing definitely is a barrier for them,” O’Neill stated. “We also found that the majority of Gen Z don’t pay for their own housing.”
Experts recommend spending no more than 30% of your take-home pay on shelter, but many young adults covering their own expenses are spending far more. Two-thirds of those Bank of America surveyed said they put more than 30% of their paycheck toward housing, and nearly a quarter spend upwards of 50%. O’Neill said she advises her own Gen Z children to adhere to the 50-30-20 rule, which recommends allocating 50% of a paycheck towards necessities, including food, housing, and transportation, 30% to discretionary spending, and the remaining 20% into savings. This rule aims to create a balanced approach to managing finances, ensuring that essentials are covered while also promoting savings and discretionary spending.
It’s not just Gen Z that is struggling. Most Americans believe they don’t earn enough to live the life they want these days, according to a separate survey by Bankrate. Only 25% of all adults in the survey said they are completely financially secure, down from 28% in 2023. The survey respondents indicated they would need to earn $186,000 on average to live comfortably. To feel rich, they would need to earn a bit more than half a million a year, or $520,000, on average. Inflation’s recent rise and specific challenges related to housing costs and college affordability were significant obstacles to achieving financial security, according to Bankrate.
“Many Americans are stuck somewhere between continued sticker shock from elevated prices, a lack of income gains, and a feeling that their hopes and dreams are out of touch with their financial capabilities,” said Mark Hamrick, Bankrate’s senior economic analyst. Inflation has eroded purchasing power, making it harder for individuals and families to maintain their standard of living. The rapid increase in prices for essential goods and services has outpaced wage growth, leaving many feeling financially squeezed. This disconnect between income and expenses is a significant factor contributing to the overall sense of financial insecurity.
Housing affordability remains a critical issue, particularly for younger generations. The high cost of housing is not only a barrier to homeownership but also affects renters. Rising rent prices have outpaced wage growth, making it difficult for young adults to save for a down payment on a home. This situation has long-term implications for wealth accumulation and financial stability. For many Gen Zers, the dream of homeownership feels increasingly out of reach, exacerbating feelings of financial stress and insecurity. Addressing housing affordability is essential for improving the financial well-being of younger generations.
The burden of student debt is another significant challenge for Gen Zers. College costs have risen dramatically over the past few decades, leading to higher levels of student debt. This debt burden affects financial decisions long after graduation, including the ability to buy a home, save for retirement, or invest in other opportunities. The high cost of education, combined with lower starting wages, puts young adults at a financial disadvantage compared to previous generations. Policymakers and educational institutions need to address the rising cost of education and provide more support to reduce the student debt burden.
Economic inequality further complicates the financial landscape for Gen Z. The wealth gap between different socioeconomic groups has widened, creating disparities in access to resources and opportunities. Those from lower-income families may lack the financial support that others rely on, making it harder to achieve financial stability. Family financial support, while helpful, can also perpetuate inequality, as those with wealthy parents have a significant advantage. Addressing economic inequality requires comprehensive policies that promote equal opportunities for all, regardless of their background.
To improve financial stability, experts recommend a multifaceted approach. Financial education is crucial for helping young adults make informed decisions about saving, investing, and managing debt. Employers can also play a role by offering competitive wages and benefits that help employees cope with the high cost of living. Policymakers should focus on creating affordable housing, reducing the cost of education, and implementing measures to control inflation. By addressing these issues, it is possible to create a more stable financial environment for future generations.
The Bank of America report highlights the significant financial challenges facing Gen Z, with nearly half relying on family financial support. The high cost of living, housing affordability, and student debt are major barriers to financial independence. These issues are not unique to Gen Z but reflect broader economic challenges affecting many Americans. Addressing these problems requires coordinated efforts from individuals, employers, policymakers, and educational institutions. By taking steps to improve financial education, create affordable housing, reduce education costs, and control inflation, it is possible to build a more secure financial future for all generations.
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