Why Millennials and Gen Z Are Struggling Financially and How to Turn It Around

As Millennials and Gen Z navigate the complexities of today’s financial landscape, they often find themselves struggling more than previous generations. Recent surveys reveal a startling reality: many are living paycheck to paycheck and lack a robust financial plan for their future. In this article, we will explore the unique financial challenges faced by these younger generations, delve into the reasons behind their financial struggles, and offer practical advice on how to turn the tide. At Financial First Steps and Smart Money Solutions, we’re dedicated to guiding you towards financial stability and success. 

Introduction 

A 2023 survey of Gen Z in 44 countries suggested that around half are living paycheck to paycheck, with almost half needing a side job. In Canada, a Leger survey found that 51% of Gen Z and Millennials are in the same situation. Gen Z and younger Millennials are less likely to have savings or a financial plan compared to older generations. A 2019 Statistics Canada report indicates that the average savings for Canadians under 35 is just $10,720. Despite an average annual household income of over $40,000, which is higher than previous generations, financial stability remains elusive. 

Unique Financial Issues 

1. Housing Crisis: 44% of young Canadians have given up on home ownership, moving away from big cities to more affordable regions. However, hybrid work and the necessity of public transportation for some, especially those with disabilities, often force them to stay in expensive urban areas. 

2. Privatization and Cost of Living: The lack of social housing, privatization of transportation, and rising utility costs have significantly impacted their finances. Higher education costs and reduced access to affordable public services further exacerbate the situation. 

3. Financial Disadvantages: 65% of Gen Z feel they are starting financially behind compared to previous generations. This perception is driven by higher living costs, stagnant wages, and the burden of student loans. 

Impact of Social Media and Doom Spending 

Social media has intensified the pressure to appear wealthy, promoting a culture of flexing expensive lifestyles. This has led to “doom spending” among Millennials and Gen Z, where money is spent impulsively on fleeting pleasures to cope with financial stress and the belief that long-term financial goals are unattainable. 

A report by Intuit Credit Karma found that 73% of Gen Z would rather spend money to enhance their current quality of life than save for the future. The ease of online shopping and targeted ads compounds this issue, making it harder to resist unnecessary spending. 

I think we can all relate to either scrolling on social media or browsing the web online and maybe through sheer boredom purchased an item that we might not have necessarily have needed. The ease of access to buy the latest fashion trend or purchase a luxury vacation is more easily accessible to us than to our parents or grandparents generation.  

Changing the Mindset 

To achieve financial stability, it’s crucial to shift from a “spend first, save later” mindset to a “save first, spend later” approach. Developing a realistic budget that allows for both saving and spending can help. Here are some steps to get started: 

1. Create a Financial Plan: Assess your income and expenses, set financial goals, and create a budget that includes savings for emergencies and future investments. 

2. Prioritize Savings: Set up automatic transfers to savings accounts and investment funds. Aim to save at least 20% of your income if possible. 

3. Manage Spending: Track your spending to identify and eliminate unnecessary expenses. Focus on what truly adds value to your life. 

4. Seek Professional Guidance: Consider financial coaching to help navigate your financial journey. At Financial First Steps and Smart Money Solutions, we offer personalized advice to help you reach your goals. 

Money Dysmorphia 

Many Millennials and Gen Zers experience "money dysmorphia," a flawed perception of their financial situation. Despite stable incomes, they feel financially insecure due to past experiences or societal pressures. This anxiety can be mitigated by setting realistic financial goals and focusing on concrete steps to achieve them, rather than obsessing over becoming wealthy. 

Even I have felt a sense of money anxiety, even though I have a fully funded emergency fund, have a steady paying job, no debt and can meet all my expenses plus the ability to buy myself something nice if I so wish. However, I still feel this scarcity towards money. However, I recently changed my mindset and tried to look more positively about my money situation and what my rich life looks like. This does not necessarily mean becoming rich but achieving a level of financial wellbeing that I can life the life I want to live. By using financial tools, such as budgeting, net worth calculators, retirement planning tools have all helped me to feel better and to calculate what I need for my rich life.  

Case Study: Sarah's Journey to Financial Stability 

Introduction: Sarah, a 28-year-old marketing professional from Vancouver, epitomizes the financial struggles faced by many Millennials and Gen Z. Despite having a stable job, Sarah found herself living paycheck to paycheck, overwhelmed by debt, and without any substantial savings. Her journey offers a powerful example of how young adults can take control of their finances with the right guidance and tools. 

Sarah's Financial Snapshot: 

• Income: $60,000 per year 

• Savings: $800 in a basic savings account 

• Debt: $12,000 in credit card debt, $15,000 in student loans 

• Monthly Expenses: $3,200 (including rent, utilities, groceries, and transportation) 

• Financial Goals: Save for a home down payment, build an emergency fund, and pay off debt 

Challenges: 

1. High Debt Load: Sarah’s significant amount of high-interest credit card debt made it difficult to save money and plan for future expenses. 

1. Limited Savings: With only $800 in savings, Sarah was ill-prepared for unexpected expenses, leading to increased reliance on credit cards. 

1. Living Paycheck to Paycheck: Sarah’s income was barely sufficient to cover her monthly expenses, leaving little room for savings or debt repayment. 

Turning Point: Realizing she needed to take control of her finances, Sarah sought help from Financial First Steps. Through personalized coaching sessions, Sarah learned to: 

• Create a Realistic Budget: Sarah and her financial coach developed a budget that accounted for all her expenses and identified areas where she could cut costs. 

• Build an Emergency Fund: Sarah started contributing $150 per month to a high-interest savings account to build an emergency fund, aiming to cover three months' worth of expenses. 

• Debt Repayment Plan: With the guidance of her coach, Sarah prioritized paying off her high-interest credit card debt using the debt snowball method. She allocated any extra money towards the smallest debt first, then moved to the next one. 

• Increase Savings: Sarah set up automatic transfers to her TFSA and RRSP, contributing $100 monthly to each, ensuring she started saving for her future. 

Results: 

• Debt Reduction: Within a year, Sarah reduced her credit card debt by $5,000 and made significant progress on her student loans. 

• Increased Savings: Sarah’s emergency fund grew to $2,400, providing her with a financial cushion for unexpected expenses. 

• Financial Confidence: Sarah felt more in control of her finances and was no longer living paycheck to paycheck. She continued to save for her future goals, including a home down payment. 

Key Takeaways: Sarah's journey underscores the importance of having a structured financial plan and the benefits of seeking professional guidance. With the right strategies and support, young adults can improve their financial health, reduce debt, and build a more secure future. 

Conclusion 

Millennials and Gen Z face unique financial challenges that require a proactive and informed approach. By understanding these issues and implementing practical solutions, they can build a more secure financial future. If you’re struggling with your finances, don’t hesitate to reach out for help. At Financial First Steps and Smart Money Solutions, we’re here to guide you every step of the way. 

Call to Action: Take control of your financial future today. Visit Financial First Steps for newcomers or Smart Money Solutions for Canadians to learn more and schedule a consultation. Together, we can create a plan that empowers you to achieve financial stability and success.