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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.
That is not a good sign for Gen Z. My take, is they need discipline, and if loans or not, they need to think about retirement from DAY 1. They need to save some amount, even if it is small. Spending too much will get them in trouble, if not during their working years, then in their retirement years.
“No matter how hard I work, I will never be able to afford a home I really love.”
Just wait’ll they find out they’re not all going to get a trophy for doing a half-a**ed job at work…
Mass affluence and constant affirmations have led to high expectations, and I see many young people expecting to start out their adult lives living at the same level they left behind when they moved out of their parents’ quarters.
It’s a rude awakening to find out that for many, if not most, real life don’t always turn out that way.
I can remember being in a similar situation in the early 1980s. I was on the 8-year plan to finish college, because I got started just when tuition was skyrocketing at 15% per year, and I was living in my own tiny apartment working as a research technician. Buying a house was, for all practical purposes, totally out of reach and mortgage rates were whole number multiples of what today’s rates are. (It also didn’t help being the tail end of the Baby Boomers – born 1961) I didn’t buy my first house until I was almost 50 years old, but we paid cash on the barrel head, because I didn’t like the mortgage rate that we were being offered on a loan.
We were buying what would qualify as a starter house, because I was living & working overseas in the oil business and our eldest needed some place to lay his head when the dorms closed during university vacation periods.
My point? Yeah, it’s tough nowadays, but it was no walk in park for me, either. Unless your last name is Vanderbilt or Rockefeller (i.e., you come from moneyed parentage), success in life requires strong character to make the hard choices.
Yeah, I remember those mortgage rates.
Gen Zers are now 14-29 years old.
Obviously some of them have reached young adulthood. But many of them aren’t yet out of high school. At least when I was a teen, my understanding of adult responsibilities and what it takes to make it in the world was not yet fully formed. I imagine some of the respondents in this research have similar maturity levels.
Another issue that these young folks face, that was not at all prevalent when I was growing up (I was born in 1960), is the proliferation of social media and the flaunting of false success as if everyone has it.
It is no wonder that young folks feel defeated from the start sometimes, when what is presented as reality is so extreme and will likely not be grasped by most people.
How we feel about ourselves and our position in society often is based on the people we see around us. Now what is seen and promoted is the extreme. And our opinions of ourselves are often in reference to those extremes.
It is a very sad state. In the aspect mentioned above, I feel sorry for youth growing up now.
I won’t get into the financial differences between now and when I was growing up. I think there are pros and cons between now and then. Different challenges exist. But people can still live successfully if their view of success is not the extreme.
“Now what is seen and promoted is the extreme.”
Doug,
I don’t think it’s extreme. I think the problem is people generally only put the best parts of their lives out into social media. It’s not real life which has ups and downs. I think a lot of youth think life should be like social media showing a It’s a Wonderful Life fictional movie.
I wouldn’t disagree with your slant on what I was trying to say.
But I do think many have taken the old show “Lifestyles of the Rich and Famous” to the next level with its goodbye to everyone with “champagne wishes and caviar dreams” and think that everyone is living that way.
This is a very relevant & timely conversation because both my kids are Gen Z (27 & 29) although my daughter is on the cusp as the youngest Millenial or the oldest Gen Z’er. And both just purchased their own home in the last month, in different states-California & North Carolina. Both did it differently and we helped some (which I am finding is the norm among their peer group). Both are college educated and make a decent salary but it’s not tech professional level by any means. My daughter is married so that makes it a bit easier to buy a home but my son is single so I am going to focus this post on his journey to home ownership.
My son graduated from college in 3 years (saving us the cost of the 4th year) and got a job within 30 miles of our house. He lived at home and saved a huge percentage of his paycheck, completed an MBA (which we paid for), and got a 2nd job in the last year to help him cobble together the funds to buy a house He also fully funded his Roth IRA and been contributing to his 401k through work with no match. The way in which we helped was that he lived here rent free and contributed funds when he needed to buy a car, and taught him about investing from an early age-putting money into a Roth for him the minute had his first part time job. Many of his friends seem to care about investing as well but they are more interested in crypto than traditional investing. The other way that we helped is that when my parents passed away there was a small IRA that I disclaimed and had it go to the kids. That helped with the down payment but the majority of the down payment came from his brokerage account and his Roth contributions that he had been making over the 7 years he lived at home.
The truth is that he had to be willing to sacrifice his independence and live with his annoying parental unit:) in order to afford a home at 27. Most of his friends weren’t willing to do that. All of his friends moved out into their own apartment and we all experienced ribbing and judgement from our respective peer groups about him living at home after the 1st year. There was this underlying belief that moving out is the panacea and living at home breeds unproductive video playing unable to launch human beings and we were in the wrong for allowing him to live at home rent free. My husband and I often disagreed on this issue. He was of the belief that he should pay rent (which he eventually did) and we would save all that rent and give it back to him in one big check when he moved out. I held firm to the idea that this is his home and home should always be available thus he is welcome to be here for as long as he likes, as long as he is doing all the responsible things. However, a couple of years ago I agreed that he should pay rent and his car insurance which he did willingly and without prodding.
I will say that there is a level of independence that can only happen when living on your own so I am not discounting the value of that. However, it would have been impossible for him to purchase a home with 20% down if he had not lived at home for all these years.
An interesting financial development occurred while he was looking for a house to buy. Interviews with JL Collins and Ramit Sethi stressed the importance of not buying a house, that the return was much better in the market and that home ownership was a bad idea that society had foisted upon us. I am paraphrasing their viewpoints. We are big believers in the value of home ownership and prefer not to rent whenever possible but the homes he was seeing in the $475k range were not great (understatement), and new builds lot size was non-existent so I told him what these financial professionals were saying that home ownership wasn’t a great idea so maybe he should consider renting for a period of time.. No sooner had he begun to accept that maybe he should rent, David Bach went on the podcast circuit to say “wealth comes from forced savings that home ownership provides and you can’t live inside your mutual fund” Having fully confused the young man he was fortunate to find a house he could afford and was very well maintained for being 20 years old and as of 3 weeks ago he has fully moved out with his dog in tow!
This is interesting because I just read an article in The Atlantic this morning saying that Gen Zers are very conservative financially and saving aggressively. It did agree that they’re not buying homes but not that they were spending profligately.
I guess it depends who you’re talking to!
https://apple.news/AVcvX8HXzT9KPiF7LfA2N5g
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.
We’re youngish Boomers (born 1960) and will likely have a mortgage for the duration. We went through many years of having our net worth, such as it was, disproportionately tied up in our home, and once we got past that stage, no longer wanted that to be true. Over the past six years, we’ve had disposable income, and a mortgage at 3.125% interest. We talked about paying it down and decided that it didn’t make much sense.
In our case, we have a lot of secure retirement income from pensions because of both formerly being state workers, so we knew that a continuing mortgage payment wasn’t going to be a problem for us. For others in a different situation, I completely see why paying a mortgage off before retirement is a great idea if they can manage it.
I get it, Dana. We contracted to build a home in 2002 when rates were under 4%, and would have borrowed at that rate. When the house was ready for us, rates had gone up to around 7%, so no mortgage for us.
“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.
My kids are Gen Z and their incomes (even the college grad) are barely sufficient at this point to rent an apartment with a roommate or two. They are careful with their money, but at these housing prices, It’s going to take a while before they’ll be thinking about buying a home, even a tiny fixer upper.
I agree that highlighted portion is the problem, and I agree that getting to that dream home may take a while. I’ll go further and say many may never get the “dream home” and we don’t need to be upset about that. I’ve had houses I liked, but none of them were my dream home or even houses that I really loved. They were fine though and I’m not complaining.
In other words your home provided shelter from the elements. Which let’s face it, is it’s primary purpose.
Primary purpose is shelter, but this is a bit simplistic. Other things we value about our house:
Within a walkable mile of public transportation into NYC. Decent local bus routes just three blocks away.
Ample parking.
Same walkable range to two different downtowns including one high end supermarket, restaurants, places of worship (which host nonreligious community events as well), decent schools, parks, libraries, etc.
Neighbors who are community.
My kids have different views of what dream house means.(This may be an article someday.)
Then there is the issue of maintenance vs appreciation. As a proportion to house value, our property taxes have dropped, but they do increase every year. Homeowner’s insurance, on the other hand, has soared. We just signed a contract for a $13.5k plumbing repair. In 2020 we spent $30k on a detatched garage repair (the foundation was crumbling on 2 sides and needed a new door and electrical servive.) We need outdoor painting every ten years. I could continue, but you get the point.
If something goes very wrong in a rental, you move. If something goes wrong in an owned property, you better be insured for it with a company that pays out.
Well, yes, but I don’t mean to imply that’s all they provided. There were certainly things about them I enjoyed. But none were a dream home.
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?
I remember in 1978 calling my Dad to tell him that we might have the last 10% loan the local s & l would make. Times change.
I read an article last week that argued that the U.S. needs to build more condos. One of the reasons was the lack of “starter homes,” which often are snapped up for cash by investors while young adults are struggling to save a down payment and qualify for a mortgage. In fact, one of the data points was that there are a lot fewer mortgages overall because of the investor factor.
I’m guessing that young adults would still happily live in starter homes if buying them was more accessible. I’m sure it depends on the market, but it seems like housing is getting out of reach all over the place, not just in sunny California.
I read that same article and recall that two of my friends got into a condo pretty quickly right after college (this would have been early 80s). It took significant fortitude and sacrifice but I believe both were glad they did that. Of course that was in the era before student debt – one worked for a big accounting firm, the other for HP, and both likely felt more stable than anyone does these days.
So unrealistic expectations, economic uncertainty, the increase in college expense / debt – I can see all of these weighing heavily on young(er) people today.
One other thing to consider is how many of these comparisons are from earlier eras when lives were “compressed” compared to today. A 30yo today might be considered to be where a 25yo was “back in the day” – they take longer to settle down / buy a house / build a career – but our SS system still suggests they will retire in their 60s when they are likely to have another 30 years to go. And we know that math isn’t going to pencil out.
So when you measure it against a 50 year working life, it’s not surprising that so many feel that they are too far behind to catch up to where these simple comparisons tell them they should be.