People typically fall into two categories: spenders and savers. When it comes to Gen Z, most seem to be spenders. According to a new Bank of America study, Gen Z has higher discretionary and necessity spending growth than the average consumer. For example, Gen Z spending growth on entertainment is up 25.5% year-over-year, and it’s up 13.8% for travel.
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Unfortunately, their saving habits are not keeping up. According to the study, the average Gen Zer does not have enough in their savings account to cover a month of spending. Data from February showed that their spending-to-savings ratio was 1.93, meaning they were spending nearly twice the amount that they had in savings.
Here’s a look at why this generation’s spending is outpacing its savings, the long-term consequence of this behavior and how Gen Z can strike a better balance moving forward.
There are several factors contributing to the fact that Gen Z’s savings are not keeping up with their spending.
“Part of this is due to Gen Z starting their financial journey,” said Taylor Bowley, economist at Bank of America Institute. “They are coming from extremely limited spending to leaving their parent’s house or their college campus and spending right out of the gate. And they’re really spending on experiences like travel or going to concerts.”
The other big factor is that they are entering an economic environment with high levels of inflation.
“Child care is a great example of this ‘tale of two cities,’” Bowley said. “On one hand, yes, Gen Z is just starting to possibly have kids of their own and need child care services, but the CPI growth for child care has been higher than the overall inflation rate.
“What’s the result? Gen Z is spending more than twice the amount of what they have in their deposit balances.”
Browley noted that this gap has increased since 2023 and remains much higher than other generations’.
“Another caveat here is that Gen Z, as a generation, also operates differently than baby boomers in that they are more likely to have multiple accounts for either investing or saving, so it’s possible some of their financial picture isn’t as clear cut as what we see in this ratio,” she added.
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Gen Zers who routinely spend more than they save are starting their financial journeys off on the wrong foot.
