The kids aren’t alright – at least, not financially speaking.
Home ownership, a symbol of financial security, is out of reach for many members of Gen Z (people born between 1997 and 2012), and those who do own homes have the lowest household incomes of any generation, according to the National Association of Realtors. The youth unemployment rate in the United States is at 10.8%, compared to 4.3% of the general population, according to the World Economic Forum.
Rising prices, falling wage growth and a low-hire, low-fire job market are hurting many Americans, a CNBC report shows. But the youngest participants in the economy – with less job training and fewer resources – are being squeezed especially hard.
The generation’s lower levels of financial literacy don’t help matters. Only 31% of “zoomers” – a nickname for Gen Z – could answer at least half the questions on the TIAA Institute’s personal finance index, compared to 52% of Gen X (people born between 1965 and 1980).
“Part of this can be explained by inexperience. They haven’t had to make as many financial decisions yet. Some are still in high school,” said Maximilian Brichta, a postdoctoral research fellow at the University of Virginia’s Thriving Youth in a Digital Environment Center.
Brichta believes experience and education may serve as a remedy to financial illiteracy, though that’s not inevitable.
“But it may also be affected by the financial environment they’ve been flung into,” Brichta said. “Research has yet to paint a clear picture of how new financial technologies and social media are influencing financial literacy for younger generations, for better or worse.”
In an increasingly digital economy, where financial stability seems out of reach, young people turn to less traditional and riskier forms of investing. Instead of putting money in a 401(k), a Gen Z-er might trade stocks through a digital broker like Robinhood. Those platforms make investing more accessible, but their primary goal is to keep users on the platform rather than help them build wealth, Brichta said.
“These companies use everything from seductive visuals, notifications and gamified features to keep people trading. The more they trade, the more the company benefits. And there’s overwhelming evidence that shows that active traders tend to make less of a return than more passive investors,” Brichta said. “Plus, the more active people are with investing, the more psychological burden they put on themselves.”
Gen Z is also more likely to turn to online financial influencers – or “finfluencers” – than to traditional sources of economic advice, such as a financial adviser or a personal finance course. A Gallup poll shows about 4 of every 10 people age 18-29 say they follow advice from social media personalities.
Brichta said just 27 states require high schoolers to take a personal finance course to graduate. At the college level, such courses can be hard to come by, especially for students who do not major in business or economics. But finfluencers are also part of Zoomers’ social media ecosystems.
“There’s also a diverse range of identities, economics statuses and genres that content creators represent, giving young adults options to get advice from people whom they resonate with,” Brichta said. “Not only do they give advice, but they document the enviable lifestyles they live because of their financial discipline.”
Not all that advice is equally useful, however. There is no requirement for influencers to provide reliable, economically grounded advice. In November, the Securities and Exchange Commission prosecuted eight social media influencers for luring their followers into “pump-and-dump scams.” An influencer can also delete a post in which they made a bad financial call and pretend it never happened.