Generation Z, born between the late 1990s and early 2010s, and about 67 million strong here in the U.S., is stepping into adulthood at a rocky time. Globally, this generation accounts for approximately 32 percent of the world’s population, making them one of the largest and most important cohorts for retailers and CPG brands. They are inheriting a complex economic landscape marked by escalating costs of living, staggering student debt, and a precarious job market that has hit this generation particularly hard. Despite being the most educated generation, they face significant financial hurdles that threaten to impact their spending on essentials such as food, clothing, and rent and compel them to be more budget-conscious.
The financial pressures faced by Generation Z inevitably affect their spending habits and that’s a wakeup call for CPG brands and all retailers. With a significant portion of their income dedicated to debt repayment and high living costs, discretionary spending on non-essential items such as clothing, gourmet foods and entertainment is often curtailed. Any wonder why ALDI and Grocery Outlet are doing so well with this cohort?
Gen Z on Record
Who are these next gens? Here in the U.S., Gen Z is noted for being the most racially and ethnically varied generation in American history. According to the U.S. Census Bureau and Pew Research Center, Generation Z is:
- 52 percent White (non-Hispanic)
- 25 percent Hispanic or Latino
- 14 percent Black or African American
- 6 percent Asian
- The remaining percentage includes individuals who identify as multiracial or belonging to other ethnic groups.
At Risk
Generation Z faces the challenge of rising living costs. Housing, in particular, has become a significant financial strain. Rent prices have surged in many urban areas, where job opportunities are often more abundant. According to a report by Zillow, the average rent in the United States has increased by nearly 30 percent over the past decade, outpacing wage growth. BLS data shows that health insurance for this group is 46 percent up after inflation. According to TransUnion, Gen Z debt is equivalent to 16 percent of their income – to give perspective, for millennials, it was just 12 percent a decade earlier.
The cost of groceries and other household necessities has also risen. The Consumer Price Index (CPI) indicates that food prices have been climbing steadily, driven by factors such as supply chain disruptions, climate change, and increased demand. For Generation Z, who may already be financially stretched thin, higher food costs mean tighter budgets and for the generation who loves food and loves to experiment with new tastes and flavors, and eating out, this is a recipe for disaster for brands and food retailers alike.
Jobpath
While Generation Z is often characterized as tech-savvy and adaptable, they are entering a workforce that has been disrupted by automation, globalization, the pandemic and most recently the advent of AI. These factors have led to a shift in the types of jobs available, with many traditional roles being replaced by gig economy positions or temporary contracts. While these opportunities offer flexibility, they often lack the stability and benefits of full-time employment, such as health insurance and retirement plans. This competitive job market has led to underemployment, where young adults are working in positions that do not fully utilize their skills or provide adequate compensation. This underemployment can lead to financial instability and hinder career progression, perpetuating a cycle of economic vulnerability.
Debt Load
According to data from the Federal Reserve, the average student loan debt for college graduates in the United States is approximately $45,300. The cost of higher education has skyrocketed over the past few decades, far outpacing inflation and wage growth. Consequently, many young adults are entering the workforce with a substantial debt load, which immediately hampers their financial flexibility. Monthly loan payments can consume a significant portion of Gen Z’s income, limiting their ability to save, invest, or spend on other necessities, let alone on impulse or luxury items.
The financial strain can lead to increased reliance on credit cards and personal loans, further exacerbating the debt cycle. The average credit card balance has gone up 25 percent according to BankRate and 1 in 7 are maxed out on their credit cards according to the New York Fed.
The financial pressures faced by Generation Z inevitably affect their spending habits and that’s a wakeup call for CPG brands and all retailers. With a significant portion of their income dedicated to debt repayment and high living costs, discretionary spending on non-essential items such as clothing, gourmet foods and entertainment is often curtailed. Any wonder why ALDI and Grocery Outlet are doing so well with this cohort?
Financial challenges faced by Generation Z also have a profound impact on their mental health. Studies have shown a strong correlation between financial stress and mental health issues such as anxiety and depression. The constant worry about making ends meet, paying off debt, and securing stable employment can take a toll on Gen Z’s well-being and that affects us all.
Responding to Gen Z Consumers
Gen Z’s financial woes are shaping a generation of careful, informed, and socially conscious consumers. The opportunity exists for retailers and CPG brands to develop products, services and retail experiences that are focused on delivering true value to this financially under-siege generation. Here are three strategies that are “must-haves” for Gen Z retail and CPG marketing:
- Price-Sensitivity. Gen Z is highly price-sensitive, often opting for generic or store-brand items instead of premium brands to stretch their dollars further.
- Digital Tools. Leveraging technology, they frequently use their screens to compare prices, search for discounts, and find the best deals (both in-store and in preparing for their shopping trips).
- Sustainability and Ethics. Despite financial constraints, many Gen Z consumers prioritize sustainable and ethically sourced products, which will influence their purchasing decisions even if these items come at a higher cost.
There is little doubt that Generation Z is facing significant financial challenges as they navigate the transition to adulthood, their purchasing decisions will reflect a balance between financial necessity and personal values. Does your marketing plan align?
