Gen Z May Scale Back Spending Amid Economic Challenges

Gen Z May Scale Back Spending Amid Economic Challenges

As Generation Z (born between 1997 and 2012) begins to make its mark in the workforce, the economic landscape presents significant challenges that could lead to a pullback in consumer spending. According to Oxford Economics, the combination of weaker employment prospects, stagnant income growth, and rising living costs may discourage many members of Gen Z from spending at previous levels in the years to come — a shift that could have ripple effects across the broader U.S. economy.

Roughly 70 million strong, Gen Z makes up about 20% of the U.S. population, and many are just beginning their professional careers. However, many remain financially tethered to their parents' homes, due to limited job opportunities in certain sectors and the escalating cost of housing. As a result, they are delaying key milestones like moving out and establishing independent households.

“Choosing to live at home reduces spending on key areas like housing, transportation, and food,” said Grace Zwemmer, associate economist at Oxford Economics. “We estimate that this trend could lead to a $12 billion annual reduction in overall consumer spending.”

A major factor contributing to this cautious spending behavior is that many members of Gen Z have yet to build substantial wealth or equity, particularly in the housing market. Unlike older, wealthier generations who benefit from the "wealth effect" — the boost in spending that comes from increasing home values and financial assets — Gen Z's ability to spend freely remains constrained.

“Without access to the wealth effect, combined with the broader economic uncertainty that shapes their outlook, Gen Z may be more reluctant to splurge on discretionary goods and services,” Zwemmer added.

As a result, businesses and policymakers may need to adjust their strategies to accommodate a more cautious generation, whose financial decisions could significantly shape future economic trends.