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New research from Bank of America’s Better Money Habits gives some interesting insights into Generation Z's financial habits and knowledge. Over 70% of people aged 18 to 25 today feel able to handle key financial tasks such as budgeting and building credit. However, nearly half carry some form of debt and many are struggling to build emergency funds or save for retirement.
Gen Z, debt, and pizzas
The survey shows that 46% of Gen Zers carry debt, and many feel it's harder to pay it off because of the current economic climate. Almost three-quarters of the respondents said inflation has made it harder to save for the future, and 43% say increased living costs have made it harder to pay down debt.
The good news is that many Gen Zers who owe money want to take action. Here's what the Bank of America data showed they were willing to do to become debt free:
- 51% would give up chocolate and pizza for a year
- 50% would babysit twin toddlers for a week
- 39% would give up their cell phone for a month
Three quarters of 18 to 25 year olds are also looking at ways to adapt to higher living costs. Some want to change jobs, while others are considering taking a second job or turning a passion into a side hustle. That said, almost 60% are optimistic about their financial futures and over three-quarters have taken at least one positive financial action in the past year.
According to The Ascent research into credit card debt, Gen Z carry less debt than other generations -- most likely because they've had less time to build up a balance. Plus, they probably can't access as much credit as they earn less. On average, Gen Z carried $2,312, compared with Generation X who carried the most card debt at $7,236.
What lengths will you go to pay down debt?
Many Americans carry some form of debt. Indeed, studies show that people expect to take on more debt in the near future as the nation grapples with higher costs of living. The difficulty is that carrying debt gets more expensive as interest rates rise. And interest rates are rising because the Federal Reserve wants to get rising costs under control. It's a double whammy. In addition, if we are about to enter a recession, as some economists warn, the less debt you carry, the better.
The Gen Zers willing to give up luxuries or take on extra work have the right idea of how to become debt free. There's no magic bullet -- it's a question of reducing your outgoing money and/or increasing your income and putting any extra cash toward your debt payments. If you're living paycheck to paycheck, that's no easy task. The most important thing you can do is make a debt repayment plan. Avoiding the problem will only make it worse.
If you don't have a budget, set some time aside to make one. Once you know how much you spend versus what you earn, you can look at where your money goes and where you might be able to make cuts. Put any savings you make toward debt repayment. Recent LendingTree research showed that the majority of people who paid off their balances did so by sticking to a budget and putting their extra cash toward debt.
It may not be as simple as giving up pizza and chocolate for a year, but you are not alone. Don't be afraid to ask for help, whether it's from a debt professional or friends and family. There are also some great debt payoff apps that can support you along the way. Try to imagine what it will feel like to be debt free, and how much extra money you'll have each month when it's not going toward servicing your debt.
Bottom line
Sadly, it's also much easier to take on debt than it is to pay it back, particularly high interest debt such as credit card balances. If the amount you owe feels insurmountable, break it down into manageable targets. Even if you only pay a small amount off each month and don't take on more, you're moving in the right direction. And once you take the first step on your debt repayment journey, the others will follow.
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