What Is Generation Z (Gen Z)?

 Gen Z is the name given to the current generation of young people by many demographic researchers. According to the Pew Research Center, Generation Z consists of people born between 1997 and 2012. The oldest of this generation are reaching 25 years of age, with many now out of college, getting married, and starting families. They follow on the heels of the millennials (1981 to 1996). As a result of the COVID-19 pandemic, members of Gen Z face a future more uncertain than many previous generations encountered.

Key Takeaways

  • Generation Z (Gen Z) refers to the generation of Americans born from 1997 to 2012.
  • The oldest members of Gen Z are starting their post-education years, with new careers and, possibly, families; the youngest is 10. 
  • While older Gen Zers have firm plans for retirement, they haven’t gone very far in starting their savings for it.

Understanding Gen Z

Gen Z is the most racially and ethnically diverse generation of Americans yet. According to the Pew Research Center, non-Hispanic White Gen Zers hold a very slim majority at 52%. Hispanics make up 25% of Gen Z, while Black Gen Zers make up 14%, and 6% are Asian. The remaining 5% are a different race or two or more races. The majority of Gen Z members are not immigrants: Only 6% were born outside the United States.

While past generations have taken up social issues, Gen Z is more social-minded than previous generations. According to The Annie E. Casey Foundation, Gen Zers are focused on seven key social issues: healthcare, mental health, higher education, economic security, civic engagement, race equity, and the environment.

Many Gen Zers soon will be ineligible to remain on their parents' health insurance, and they are concerned about how to pay for their own coverage. This issue is further exacerbated by the increase in the number of Gen Zers seeking mental health treatment.

Gen Zers also make education a priority. More than half (57%) of those aged 18 to 21 years old were enrolled at either a two- or four-year college. Gen Z members also are more likely to finish high school.1 

Members of Gen Z are fighting for social change, racial equity, and protecting the environment in record numbers. Some have elevated their profile to the national level, such as X, formerly Emma, González, a survivor of the 2018 Marjory Stoneman Douglas High School shooting, who helped organize the March for Our Lives movement with other survivors. According to the Pew Research Center, approximately 70% of Gen Zers think the government needs to take a more active stance in addressing problems.

Gen Z vs. Millennials, Gen X, and Baby Boomers

The 21st Annual Transamerica Retirement Survey of Workers looked at how Gen Z views its finances and retirement prospects compared with millennials, Gen X, and baby boomers. Key findings include:

  • Almost six in 10 Gen Z workers (59%) said their employment situation has been negatively impacted—primarily due to a reduction in work hours—as a result of the pandemic, which is significantly more than among millennials (51%), Gen X (39%), and baby boomers (30%). 
  • Baby boomers, Gen X, and millennials are significantly more likely than Gen Z to cite saving for retirement as a financial priority (75%, 65%, 53%, and 33%, respectively). But they are, of course, a lot closer to it—or already there, in the case of many boomers.
  • Building emergency savings is a priority for 50% of Gen X, 46% of millennials, 42% of Gen Z, and 36% of baby boomers.

Gen Z’s Financial Situation 

According to the Transamerica survey results, Gen Z currently has little to no financial security. Gen Z workers are more likely to say they are just getting by to cover basic living expenses (50%) and paying off student loans (35%) than older generations. In addition, they have saved just $2,000 in emergency savings, while 30% have dipped into their retirement accounts. Also, approximately one-third of Gen Zers have reduced their day-to-day expenses due to pandemic-related financial strain.9  

Retirement Savings 

Even though Gen Zers might be on the shaky financial ground at the moment, they have firm plans for retirement. In fact, 70% are saving for retirement through employer-sponsored plans, such as a 401(k) or similar plan, and/or outside the workplace, per the Transamerica survey. Gen Zers also started saving for retirement at age 19, much earlier than millennials (age 25), Gen X (30), and baby boomers (35).

According to the survey, Gen Z members estimate that they will need $500,000 by the time they retire to feel financially secure. However, only 32% have a backup plan if retirement comes unexpectedly.11 

Financial Planning for Gen Z

Because Gen Zers are just moving into the workforce, many don’t have a lot of experience with financial planning. They may know about employer-sponsored plans, but many don’t know much about investment products outside of work, such as bank accounts (savings and money market), individual retirement accounts (IRAs), and certificates of deposit (CDs). In fact, according to the Transamerica survey, only 9% have a “great deal” of understanding of asset-allocation principles as they relate to retirement investing.

If you belong to Gen Z, here are four steps you can take to help you start down the road to a strong financial future. 

1. Get a Comprehensive Financial Plan

Don’t wait until you are well into your career to seek financial advice for your financial future. If you have a steady job and already are saving for retirement through an employer-sponsored plan, now is the time to seek input on how to maximize your savings. Learn about budgeting—there are great apps for that—and work to build an emergency fund to help you through tough times and keep you from ending up with serious credit card debt if, for example, your car breaks down.

2. Manage Your Debt

Even for the oldest 25-year-old Gen Zers, making a home purchase may still be some years away.2 But it's not too soon to get your finances under control, which will help you get a mortgage when the time comes. A good credit rating and a low debt level will help both your present (hiring managers sometimes check this) and your ability to get everything from a car loan to, eventually, a mortgage. Work to get control of your student debt and keep credit card debt at a minimum. Learn about the debt-to-income (DTI) ratio—a number that will eventually help you get a mortgage (mortgage lenders want your DTI to be 43% or less to qualify for a home loan, per Chase) but that right now can help you gain control of your finances.

Paying off credit cards can give your DTI a big boost, as can paying off any installment loans, such as car loans or student loans. If you’re having trouble paying down your debt, a certified credit counselor can help you develop a plan of action. 

3. Get a Head Start on College Costs 

As college tuition continues to increase, it's important to look for ways to pay for college that won't leave you drowning in debt. While four-year colleges are considered a primary path to a college degree, there are other, more affordable options that could reduce how much you pay for college. Taking classes online, attending a community or junior college, or opting for a technical school all offer avenues to a secondary education that cost less than traditional four-year schools--or make the first part of a college education cheaper.

Taking time off to work full time and save up for tuition costs is another avenue to pay for college. You also could apply for the Federal Work-Study program, wherein you can work part-time while attending school either part or full time.

Searching for scholarships and grants is another way to pay for college. Don't rely solely on your school's financial aid office to match you with possible scholarships or grants. There are several search engines available to help locate scholarships that you may qualify for to help pay tuition and college costs. These include Fastweb, Mometrix, StudentScholarships.org, Unigo, and Scholly.

4. Get a Financial Picture From Parents 

As you embark on adulthood and begin to take control of your own finances, talk with your parents regarding how to build a secure financial foundation. They can help fill in the blanks regarding questions you may have regarding building up your savings, managing your credit card use, establishing a good credit history, and understanding employer-sponsored retirement accounts and benefits.

If your parents don't have a strong financial history, search for a local banker or financial advisor you can talk with regarding your financial issues and goals. And build your financial expertise by learning on your own.

Who Belongs to Generation Z (Gen Z)?

People born from 1997 to 2012 are considered to be part of Gen Z. That means that the eldest among them will reach a quarter-century of life in 2022.2

Does Gen Zers Tend To Be Financially Secure?

Not yet. Fifty percent are making just enough to cover their basic living expenses, while 35% have student loans to pay off. One-third of them report having suffered financially due to the COVID-19 pandemic.

Is Gen Zers Saving for Retirement?

Gen Zers are the most retirement-conscious generation ever. A staggering 70% have some sort of retirement plan, whether employer-sponsored or self-set-up. Gen Zers started saving for their retirement at age 19. Compare that to millennials (age 25), Gen Xers (age 30), and baby boomers (age 35). Gen Zers anticipate needing to save $500,000 for retirement, however, which may prove to be an underestimate, as financial experts tend to peg the number higher, as much as $2 million.

The Bottom Line

Gen Z’s oldest members are beginning to move into their post-education years, which brings a wealth of new financial considerations with it. This includes planning for retirement, finding ways to pay for their college education, and setting the stage for a strong financial future, including buying a home. Having a firm financial plan in place can go a long way in helping them achieve their financial goals and provide financial security as they get older.

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