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A paper by Northwestern University and University of Chicago researchers concluded that Gen Z “are spending more of their earnings than they are saving, they’re working less, and they’re making risky investments.” 46% of Gen Z respondents agreed with this statement: “No matter how hard I work, I will never be able to afford a home I really love.”
The emphasis is mine and I think that’s important. One of the challenges we face in life is “unrealistic expectations.” In the current market, it may be necessary to make compromises. This is particularly so because many young people carry student loans, credit card debt and an automobile loan. Add the cost of renting and there may be little or nothing available to accrue a down payment.
Northwestern’s Seung Hyeong Lee and Chicago’s Younggeun Yoo Gen attribute Z’s withdrawal from buying a home because they are spending more money than they’re saving. This phenomenon is called doomspending. The authors point out that “renters give up on home purchases and instead use their savings to increase consumption.”
One study showed that nearly half of Gen Zers don’t have an emergency fund. A Bankrate survey also showed as many as 27% of Gen Z carry more debt than they do savings.
The researchers stated that Gen Z takes on risky investments, like buying cryptocurrencies. The researchers also stated that when buying a home for a Gen Zer seems unaffordable, they also increase their leisure spending.
Contrast this to Midwestern Millionaire traits.
Almost everyone, except maybe FIRE adherents and the frugal wealthy, spends more of their earnings than they save.
I think Gen Z tops out around age 29 or 30. I guess our living in the midwest and having a barely seven figure net worth qualifies us as ‘midwest millionaires’. So I’m thinking of my younger self, and where I was at that age. My emergency fund was my mom and dad, and I didn’t have the benefit of a 401(k) like today’s young workers do. I did have steady employment as a beer truck driver, though getting by on just one income while raising two kids was tough. My risky investment drug was rental properties; I’m thankful that we didn’t have crypto and sportsbooks back in the day.
Chris and I became good savers, and even though we got a late start together (age 49 and 47) we were mortgage free years before retiring. I can’t say the same for many of the boomers whose taxes I prepared, who presented 1098 forms showing mortgage interest paid.
I think Gen Z, and whoever follows them, have different challenges than we boomers, but they also have some tools that we didn’t. Some will use the available tools, and some won’t.
“No matter how hard I work, I will never be able to afford a home I really love.”
The highlighted portion of this quote is the problem.
My wife is an avid watcher of House Hunters (not me at all). It seems that young house buyers want to buy the house of their dreams and continually complain about features of houses they are looking at, and more times than not go over the budget to get the house they want.
Our first house was an in-town house on a postage stamp lot in Pennsylvania while preparing for the birth of our first child in 1985. We paid 52K and paid 13.5% interest. It was what we could afford on a single salary.
A year later we decided to move back to NH to be close to family. Luckily we sold for 60k which difference paid for the closing costs. Six months later we purchased a house that we practically cried when we first saw what we could afford for 100k. It was a small ranch in a crowded neighborhood on another postage stamp lot that needed a lot of spiffing up.
Eight years later we ere able to sell that house and buy our dream house (another fixer upper, but a nearly 100 years old) on 1 1/2 acres. During this time a lot of homeowners were under water because they had overpaid for their house, while we had not. This house was slowly renovated over 20 years before we built our retirement home.
This is basically a long winded post about how you have to be able to work your way up to your dream house, and even then might have to buy and put some energy into it.
We were married while I was in the army. I was 25. When I got out we didn’t have any savings, but also no debt.
For the year after I was back at work, we lived on my pay and saved Connie’s salary. That was our down payment.
Then we were able to purchase what was then called a starter home, an old house (1918), with just the basics, small and one bath on the second floor. That’s all we could afford so that’s all we bought.
I wonder how prevalent today the starter home, the willingness to accept less, to compromise is, to wait for the future?