March 19, 2024
Written by Yaёl Bizouati-Kennedy
Americans seem to have a more optimistic view of the economy, yet, simultaneously, their feelings of financial insecurity have hit a record high. While this sentiment is prevalent across all generations, for GenZers — the first “digitally-native” generation — this increased optimism also means they are the most likely to increase non-essential spending, a new Northwestern Mutual study found.
The 2024 Planning & Progress Study found that Americans’ feelings of personal financial insecurity are on the rise, as 33% of adults say they do not feel financially secure, up from 27% last year, with inflation being the top concern. This is also the highest measure of financial insecurity recorded in the study’s history.
At the same time, fears of a recession are receding, with 54% of adults expecting the country will enter a recession this year — a substantial drop from the 67% who predicted a recession last year.
Yet for Gen Z adults, 62% believe the country will enter a recession this year -the highest cohort that thinks that way, despite a 12% decrease from 2023.
On the other hand, Gen Z adults are also the most likely to say they’ll increase non-essential spending, with 36%, compared to 26% for adults overall, and 24% for Gen X adults, who are the most likely to say they’ll be tightening their belts.
So what are the reasons behind this discrepancy between planning to spend more, yet feeling financially insecure?
Different Approach to Finances
Some experts argued that the primary reason is caused by a generational shift in attitudes toward the role money plays in life.
“Gen X is more likely to subscribe to a more traditional finance trajectory — work hard, save/invest your money, and retire early – which may explain why they’re more likely to cut back on their spending in preparation for a recession,” said Steve Sexton, CEO, Sexton Advisory Group.
On the other hand, according to Sexton, Gen Z is more likely to see money as a tool to live in the present, prioritizing quality of life and experiences over a robust retirement account.
“Which is why this cohort is more likely to continue committing to non-essential spending as a means of maintaining their quality of life, even during a recession,” he said.
Longer Runway to Retirement
Another reason is that Gen X is feeling it is time to tighten their belts because their runway to retirement is getting shorter.
“They are starting to do the math and are nervous about what they see,” said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.
Meanwhile, she said, Gen Z may have vague concerns but retirement is still far off.
“Gen Z is old enough to have experienced the economic and social impact of the pandemic and they have a heightened appreciation for making sure that you fully live your present life,” said Rebell. “Many also likely also have some level of FOMO for the coming-of-age years that they feel they missed out on during the pandemic.”
In turn, they want to make sure they fully participate in life while they can because they know so vividly how quickly social freedom can be taken away.
“In fact what we may characterize as “non-essential,” many Gen Z-ers may see as very much essential for their mental health and happiness now that the world has opened back up for them,” she added.
What Can Gen Z Do To Make This Discrepancy Work?
As with most prudent financial advice, extremes on both ends of the spectrum are likely unrealistic and unsustainable, said Sexton.
“For Gen Z, there’s likely a happy middle ground that allows them to continue spending on certain “non-essentials” that benefit their quality of life, while cutting back on certain mindless purchases and reallocating these funds toward savings or retirement accounts,” he added.
To achieve this happy medium, Gen Zers should set an accurate budget, by reviewing the last several months’ worth of credit card statements, and then, evaluate what is essential, what’s non-essential but worth keeping, and what should be eliminated, said Sexton.
“This evaluation is of course deeply personal and different for every individual, so there’s no one-size-fits-all formula; but there should be an understanding that some concessions should be made for your future self and your financial well-being,” he added.
Another factor that comes into play, according to experts: Gen Z’s optimism, combined with the influence of digital environments, encourages spending that prioritizes immediate gratification and social identity, even in uncertain economic times.
According to True Tamplin, founder of Finance Strategists and CEPF, addressing this discrepancy involves two strategies: enhancing financial literacy and promoting mindful spending.
“By focusing on financial education and mindful consumption, Gen Z can enjoy life’s pleasures while building a foundation for financial resilience,” said Tamplin.
