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People saved more money than ever during the pandemic recovery years, but rising prices are now forcing many to loot the emergency funds and nest egg they have built up – especially young people.
A new GOBankingRates study of 1,000 adults shows that more than half of 18-24 year olds have had to dip into their savings to manage the cost of rising inflation. About 52% of Gen Z had to loot their savings to survive – other generations fell by 15 percentage points or more.
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If Gen Z’s savings proved vulnerable when prices started to rise, it’s likely because younger adults are naturally the most invested in emerging trends in work, credit, health and safety. investment and currency. Gen Z is on the cutting edge of technology — and when things go wrong, it can be a dangerous place for you and your money.
Meredith Lepore, personal finance expert with Belief, has seen younger adults fall into a trap fueled, in part, by personal finance mythology. Since mishandling credit cards can lead to debt, the myth goes, it’s best to avoid them altogether – if you don’t have a credit card, after all, you don’t have to worry. credit card debt.
The problem is that young consumers have flocked to alternative borrowing options with different risks.
“We’re seeing that a lot right now with Gen Z using BNPL instead of credit cards,” Lepore said in reference to buy now, pay later.
BNPL allows buyers to spread out their purchases in small interest-free payments without credit checks. It can give a false sense of confidence to make purchases that would otherwise be unaffordable.
Lepore cited Credello’s own reports, which showed Gen Z are much more likely to use BNPL than the broader population. The generation’s distrust of banks has hijacked the credit card trend, as have TikTok influencers who have been promoting BNPL since the platform’s rise to power began in the age of the pandemic to social media supremacy.
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With no traditional credit to fall back on, Gen Z paid their BNPL bills with savings
When inflation drove prices up, Gen Zers were much more likely to owe weekly BNPL payments, which became increasingly difficult to track as everything became more expensive. Many young people were shocked to learn that their credit ratings plummeted when they missed a BNPL payment.
That, plus the fact that they hadn’t built credit with responsible credit card use, made traditional borrowing more difficult and more expensive.
It’s certainly possible that the move to BNPL — and the irrational credit card phobia that spurred it on — caused Gen Z to deplete their savings when inflation took off. The timing also represented a missed opportunity to build credit when they were young.
“There are actually a lot of benefits to paying with credit cards, like cash back or rewards that you can use for free travel and hotel upgrades,” Lepore said. “If you use a credit card for the majority of your everyday purchases like groceries and gas, these rewards can really add up and give you substantial benefits.”
According to recent research from retirement fund rolling firm Capitalize, more than half of Gen Z and millennials are now incorporating crypto into their retirement funds. Overall, these two generations represent 94% of all crypto buyers, according to Stilt.
The rise in inflation coincided with an epic crypto crash that caused the price of bitcoin to plummet 70% from last November to the end of June. With young adults so overinvested, it’s almost certain that at least some of Gen Z’s savings have been spent on expensive crypto moves.
The GOBankingRates study showed that members of Gen Z were much more likely than older respondents:
- Selling Cryptos to Face Inflation
- Having bought crypto when prices fell
- Have changed their 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, younger investors were much more likely to crash with it.
“Investing in crypto is very risky and volatile,” said Louise Elizabeth Lowe, co-founder of the crypto-themed website and YouTube channel. Every bit helps. “Your investments can grow in multiples of two, 10, and even 100. The potential for such lucrative returns is why crypto investing has become so popular, especially among Millennials and Gen Z. But at the same time , it could also drop to zero.”
Even the oldest members of Gen Z haven’t been in the workforce long enough to build up significant savings, but their views on employment could explain why so many have had to dip into their savings to survive. to inflation.
With the big quit in full swing in September 2021, Forbes reported that Gen Zers were fleeing their jobs at much higher rates than older demographics. In February 2022, Axios reported the same thing. A few months later, in May, CNBC reported that nothing had changed — younger employees were still fueling high labor market turnover.
“Gen Z and millennials are much more likely to join the big quit than their older colleagues,” said Kevin Harrington, CEO of List of jobs.
As the youngest employees, they had the least seniority and the most incomplete skills to begin with, so their positions were already the most vulnerable. It’s reasonable to assume that their penchant for job-switching has only made Gen Z’s burgeoning participation in the workforce all the more precarious – and savings have become a life raft for those who played badly on the big resignation.
More from GOBankingRates
Methodology: GOBankingRates surveyed 1,000 Americans ages 18 and older across the country between June 22 and June 24, 2022, asking nine different questions: (1) Which inflation-affected item hurt your finances? ; (2) How has inflation affected your personal finances (select all that apply)? ; (3) What cost reduction measures are you taking to limit the impact of inflation? (Select all that relate to it); (4) Have you canceled any plans or trips due to rising gas prices? ; (5) What worries you most about the current economic situation? ; (6) How do you react to the stock market entering a bear market (any stock index or individual stock that falls 20% or more from its recent highs)? ; (7) What impact has the stock market decline had on your retirement plans? ; (8) How has the current crypto decline affected your investment strategy? ; (9) How has the current crypto decline affected your view of crypto as an asset? ; (10) Which small businesses do you visit the most? ; (11) Have you ever considered starting a small business? ; (12) How do you support small businesses? (Select all that relate to it); (13) Why do you prefer a small business to a chain or big box store? (Select all that relate to it); (14) Over the past two years, how has your relationship (or spending) with small businesses changed? ; and (15) How do you interact most with small businesses?. GOBankingRates used PureSpectrum’s survey platform to conduct the survey.