Navigating the New Financial Reality Facing Millennials and Gen Z

Younger generations are up against unusual financial headwinds, but understanding these factors and taking some steps now can help you stay on track toward achieving your goals.

Mother and Daughter Using a Laptop at Home

by NEA Member Benefits

Mar 25, 2023

All generations experience different economic events in young adulthood that can shape their goals and how they manage their money.

For example, young baby boomers in the 1960s benefited from the highest job growth since World War II. Yet many of their millennial children graduated from college during the longest recession since that war. And Gen Z workers were hardest hit in 2020 by the economic ramifications of the novel coronavirus pandemic.

Plus, younger generations today face financial hurdles that many of their parents or grandparents simply didn’t—namely, the steep rise in the cost of college and resulting high student loan debt.

These experiences can lead generations to develop different priorities—and trigger misconceptions about each other.

In this article, we will:

  • explore some common money issues that millennials and Gen Zers are facing now
  • review some practical tips to help manage those issues
  • discuss helpful ways to bridge the generation gaps through a common understanding

Younger generations have come of age during economically tumultuous times 

Perhaps no generation has been more unfairly mocked about their finances than millennials. Born between 1981 and 1996, millennials generally have delayed traditional milestones, such as getting married, having children and becoming homeowners.

Critics blame this on millennials’ penchant for avocado toast and lattes or other misplaced spending priorities. But the reality is, many millennials graduated from college in the wake of the Great Recession of 2008. Instead of launching their careers, as previous generations had done with relative ease, these millennials faced high unemployment, or even underemployment. And their earnings have struggled to catch up since.

“For most of us right out the gate, when we just got out of college or started our first jobs, we were faced with certain headwinds in the economy, which made it really difficult to either find a job or thrive,” says Jordan Sowhangar, a millennial and certified financial planner (CFP) in Souderton, Penn. “It kind of had a negative domino effect after that.”

Additionally, some millennials saw their own parents lose homes or suffer steep losses in the stock market as the recession deepened. That made the younger generation reluctant to buy a house or invest, Sowhangar says.

And now that millennials—the majority of whom are in their 30s—want to purchase homes, they often find themselves squeezed out of the market by a lack of supply, rising mortgage rates and increasing prices. For example, the median existing-home sale price dipped slightly to $359,000 in January 2023, but that’s still $92,700 higher than three years earlier, according to the National Realtors Association.1

Similarly, the unemployment rate among Gen Z workers (born in 1997 to 2013) during the early months of the pandemic in 2020 soared to 24.4%, the highest among all ages.2 Many colleges closed campuses and moved classes online. These factors contributed to a temporary spike in the number—52%—of 18- to 29-year-olds living with their parents in 2020, a level not seen since the Great Depression, according to Pew Research Center.3

Beth Lundberg, a CFP in Tyngsborough, Mass., researches generational differences in money management. She has found that millennials and Gen Z spend a larger percentage of their paycheck on necessities than previous generations did.

For example, back when Gen Xers (born 1965 to 1980) were in their 20s and early 30s, 17% of their income went to rent. That’s compared with 30% for today’s younger workers, Lundberg says.

Plus, younger generations spend at least 2% of their income on items considered “essential” today that older generations didn’t, such as internet and cellphone plans.

Both of those factors mean that younger generations spend 15% more of their income on essentials. That’s money that previous generations were able to save or invest, Lundberg says.

Action items: Did you know that buying a home can be more affordable through programs designed for teachers? Find out more in What to Know About Teacher Home Buying Programs. Even if you can’t find grants, you still have access to a special mortgage benefit through your NEA membership.

You also can use the practical advice in How to Reduce Your Monthly Bills, 7 Steps to Getting Your Finances Under Control and 8 Money-Saving Strategies to Help Beat Inflation to find ways to stretch your budget.

Younger generations are burdened by sky-high student loan debt

To date, millennials are the most educated generation, although Gen Zers are expected to overtake them. But diplomas for these two generations have come at a high cost.

“You used to be able to work a summer job that could theoretically pay for your college tuition,” says millennial Nicholas Tilli, a CFP in Minnetonka, Minn. “Now with college costing upwards of $30,000 or $50,000 a year, good luck being a pizza delivery person for three months out of the year and even putting a dent in that.”

Indeed, average tuition, fees, and room and board at a four-year college in 2020-21 academic year was $29,033. That’s nearly 3 times higher than 40 years earlier after adjusting for inflation, according to the National Center for Education Statistics.4

This is likely to be a growing problem for Gen Zers, many of whom are still years away from college. The Federal Reserve Bank of St. Louis compared education debt held by millennials when they were the same age as today’s older Gen Zers. Not only are Gen Zers more likely to have student loans, but the average debt—$20,900—is 13% higher than what millennials had at the same age.5

The burden of student loan debt is particularly felt by educators, who usually need one or more college degrees to succeed professionally but often can’t afford tuition bills without borrowing, according to Horace Mann Educators Corp., a financial services company focused on educators.

A Horace Mann survey of educators in 2022 found that:

  • 85% said student debt kept them from buying a home, starting a family and other life goals.
  • 44% of them said they’re “just getting by,” compared with 16% of the overall U.S. population. 6

Action items: Need help dealing with your student loan debt? Check out the NEA Student Debt Navigator to explore student loan debt forgiveness and other solutions available to help manage your debt. You could find that you’re eligible for full or partial forgiveness, or you may find options to reduce your monthly payments. If you don’t find any applicable solutions there, consider refinancing your loans.

Opportunities to save for the future are on the rise

Younger generations do have some factors working in their favor. The unemployment rate is now the lowest in more than 50 years, and wages are starting to increase after stagnating for decades. Millennials, the oldest of whom are turning 42 in 2023, are entering their peak earning years.

And although traditional pensions have been disappearing for decades in the private sector, many public-sector educators still receive pensions and have access to retirement savings accounts that allow them to put away more money for their futures.

Action items: Starting to save for retirement in your 20s and 30s can really pay off, as your investments have a much longer time to grow. Find out how pensions, Social Security and other retirement income sources work together in An Educator’s Guide to Retirement Income Planning. Then, check out the retirement planning benefits available to NEA members to help you build your nest egg.

Goal-setting is a powerful tool to chart your course

Some things don’t change much throughout the generations. You still need to set goals and budget for them if you want to build wealth and overcome any economic headwinds that blow your way, planners say.

“It’s really difficult for us to prioritize things that are 30 or 40 years in the future when we have more immediate pressing things on our minds” such as student loan debt or credit card debt, says CPF Tilli. That’s why he recommends starting with setting financial and professional goals for three shorter time horizons: 12 months, 3 years and 10 years.

Expect goals to constantly evolve, and review them at least annually to evaluate your progress, Tilli says. And don’t worry if you don’t have goals for each time horizon, he adds, because sometimes events create targets for you. For example, federal student loan payments will likely kick in again in 2023, so borrowers need to be prepared for that.

Some people, particularly older millennials, might have retirement planning as a goal even though retirement may be a few decades away. Educators, for example, may be able to get a projection of what their future benefit will be. That can help you set a goal of how much you want to set aside annually in your workplace retirement plan to supplement any pension income you may expect to receive.

Action items: Not sure how to prioritize your goals? Read 7 Financial Tips for New Teachers to learn about financial targets that can help put you on sound footing.

Then, use the NEA Retirement Income Calculator to see if you’re on track for retirement or if you might need to be putting away more on a regular basis. This special calculator, just for NEA members, allows you to add in your state pension data and other household resources to get a realistic snapshot of your retirement expectations.

Another way to prepare for the future is to make sure you have enough insurance to cover yourself or your family in the event of an emergency. Consider whether life insurance may be suitable for your situation, especially if you have dependents or assets to cover.

Also think about signing up for disability insurance, which can help if you’re thinking of starting a family or if you want to be prepared in the event of an illness or injury. Disability insurance can be especially helpful for younger educators who haven’t accrued much tenure or sick leave yet.

Budgeting never goes out of style

Once you have goals, begin to budget for them. A budget can help with knowing exactly where your paycheck goes for necessities, savings and debt, and entertainment.

Lundberg says it’s easy to lose track of expenses in today’s digital world, especially when payments are made with a swipe of a card, a tap on a phone, or automatic online renewals. “One of the benefits of cash is you literally feel it slipping out of your hands. It’s tangible,” Lundberg says. “We don’t get that with digital transactions.”

That could be the reason behind the budgeting method that’s gone viral on TikTok called “cash stuffing”—a revival of the decades-old envelope system. The method puts a hard spending limit on purchases, particularly those that vary from month to month.

Basically, you decide how much you want to spend each month or paycheck on certain categories, say, groceries or entertainment. Then you divide your cash into envelopes labeled for those specific purposes. Once the envelope is empty, you can’t spend any more on that category until you replenish the envelope the next month or pay period.

If you have cash left over, you can leave it in the envelope to spend more in that category the next month, or leave it there for any unexpected expenses that might crop up.

A recent online survey by Credello, a personal finance site, found that 1 out of 3 millennials and Gen Zers reported that cash stuffing was “very effective” for saving toward a goal.7

Action items: Get started with Build a Budget in Six Easy Steps, which includes a budget planning workbook that’s free for NEA members. For more budgeting ideas, check out 4 Ways to Boost Your Budget Sense.

Sometimes you need to cut discretionary expenses or bring in more income to make your budget work. To boost income, see 5 Great Side Jobs for Teachers to Earn Extra Money All Year Long for practical tips from other educators.

Education can bridge the gap between generations

Each generation seems to develop an opinion of the next one. (Boomers might recall what their parents thought about them in the 1960s!)

“It’s important not to get caught up keeping score. Every generation is going to have their unique headwinds,” Tilli says.

But older generations can use their experience with money to guide younger generations, while acknowledging that their situations may be different from how things were when they were their age. The first step is simply to talk about finances.

“Keeping an active family discussion about money has priceless benefits. For example, many young people assume their parents have it all figured out. Even if that were the case, it was not always,” says Bobbi Rebell, a CFP and author of Launching Financial Grownups. “Parents should try to be as honest as is age appropriate about their own financial experiences and perspectives so their kids can learn from their wins – and their losses.”

Tilli says his father always advised him to “pay yourself first,” meaning build wealth by putting aside money for emergencies or your goals first before spending it on other things. It’s a lesson that was ingrained in Tilli as a youngster – and one he now preaches to his clients.

“It might seem like [children] aren’t listening. But when the time comes, they’ll recite those little quips and use them,” Tilli says.

Action items: Here are some steps that older adults can take, especially to instill good financial habits in children:

  • Help children get in the habit of saving 10% to 20% of every dollar they earn for their future.
  • Explain the importance of an emergency fund and how to build one.
  • Assist working youngsters with opening a Roth IRA, which can introduce them to investing. (A parent can even fund a child’s Roth up to the amount of the child’s wages for the year, but no more than $6,500 in 2023.)
  • Teach young adults about investing basics. Understanding the Stock Market: A Beginner’s Guide is a good resource.
  • Explain how to use credit cards and buy-now-pay-later programs responsibly.
  • Teach younger generations about how to protect their finances against online fraud and other common problems.

[1] Existing-Home Sales Descended 0.7% in January, National Association of Realtors, Feb. 21, 2023; January 2020 Existing-Home Sales, National Association of Realtors, Feb. 25, 2020.

[2] Young workers hit hard by the COVID-19 economy, Economic Policy Institute, Oct. 14, 2020.

[3] A majority of young adults in the U.S. live with their parents for the first time since the Great Depression, Pew Research Center, Sept. 4, 2020.

[4] Digest of Education Statistics, National Center for Educational Statistics, 2021.     

[5] How Does Gen Z Student Debt Compare With Millennials? Federal Reserve Bank of St. Louis, Aug. 25, 2022.

[6] Checks & Balance, Horace Mann, November 2022.

[7] Cash Stuffing Survey: 1 in 3 People Say It’s Very Effective for Saving Towards a Goal, Credello, August 2022.

Benefits mentioned in this article