The Math Isn’t Mathing: Gen Z’s Emotional State and Spending

More than half of Gen Z have missed at least one BNPL payment in the last two years

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This fall, led by younger consumers, we saw Black Friday online spending reach an all-time high of $9.8 billion in the U.S. While the saying “as the U.S. Consumer goes, so goes the economy” conflates spending with a healthy financial system, when we step back and take a closer look at the lives of young consumers, something unsettling emerges.

Start with the fact that Gen Z has 86% less purchasing power than Baby Boomers did in their 20s. Or that the number of recent graduates who were “not confident” they’ll secure a good position in today’s economy in Spring 2023, rose to 51% while over one-third of “Gen Z” don’t think they’ll ever be able to afford their own house.

But as we saw on Black Friday, Gen Z’s bleak hopes of achieving traditional markers of financial success stand in sharp contrast to their heavy spending. In the luxury sector alone, Gen Z and millennials accounted for “the entire growth of this U.S. market in 2022” and are predicted to represent 70% of spending there by 2025.

Pervasive financial pessimism is in the air. In a recent white paper published by Ogilvy Consulting, we dig into how FinServ brands should be thinking about their relationship to Gen Z and how to better engage and support them in their financial well-being.

Emotional spending affects more than half of Gen Z

A decade ago, 52% of 18-26-year-olds in the U.S. described their mental health as excellent. Today, that number is only 15%.

With social isolation, financial instability and an uncertain job market looming, Gen Z is struggling with a perceived lack of control in the world. 57% of American students in 2023 reported “persistent feelings of sadness or hopelessness,” a dramatic increase from 36% of Millennials at the same age in 2011.

What we’re seeing is a major health issue that’s converging social, cultural and economic factors. Buying all of these goods, luxury or not, is not an indication of Gen Z’s expedient or exorbitant wealth but rather a manifestation of our dire need to boost self-esteem and a sense of belonging in society.

Surrounded by influencer culture, TikTok shopping hauls and “viral” products, we’ve normalized heavy spending as a tool for self-expression and relationship-building, or at least the illusion of it. This phenomenon is called emotional spending; it affects 59% of Gen Z, more than any other generation. But underneath the aspirational content and illusion of control enabled by emotional spending, there’s a missing sense of what “value” means or holds for the long term.

Buy now, pay later is not helping

It seems that bleak hopes of traditional financial success mixed with commerce-driven rapid dopamine hits have conspired to create a fundamentally different view of financial security trade-offs than past generations. One of the prevailing data points coming out of this year’s Black Friday is the use of Buy Now Pay Later (BNPL) platforms.

It’s not a coincidence that the rapid emersion of this technology coincides with Gen Z’s adulthood. Last year at this time, 48% of Gen Z said that they planned to use BNPL services for the 2022 holiday season, compared to only 14% of Baby Boomers. Alarmingly, Gen Z respondents are exceeding other generational cohorts in two troubling categories, with more than half of Gen Z having missed at least one BNPL payment, while also nearly tripling their overall debt load in the past two years.

When asked about their rationale, 73% of Gen Zers said they prefer a better quality of life rather than extra money in the bank. As a result of excessive discretionary spending, nearly 33% of Gen Z workers have saved nothing for retirement in the last two years.

To be clear, it’s not that we can’t see beyond the present tense, but we’re not saving for it. Maybe because quality of life is a metric best felt in the now. Maybe because we’re not sure that day will ever come.

So where does Gen Z go from here?

Many days it feels we’ve been left with the Sisyphean task of choosing between self-care splurges and making financially sound decisions in this uncertain world. Short-term spending has become our coping mechanism; it’s a celebration of what we’ve been able to accomplish so far, a shield to fight off emotional lows and a currency for social acceptance. But it’s time to wave the flag—we need to reset our relationship with money.

Like so many of the systems Gen Z has already disrupted, we’re fighting for change here too even if it means simply asking for help. Surprising to some, Gen Z really wants to learn more about personal finance and how to improve their financial well-being. 43% of Gen Z and millennials recognize the need to be more proactive about financial planning, and 79% of Gen Z “would like to see brands offer more education or courses on personal finance.”

Moving forward, we have to imbue younger generations with a set of modern resources that meets them where they are, in the context of emotional spending and financial pessimism. And to be fair, some organizations and companies are stepping up.

Capital One launched First-Gen Focus, a program to support first-generation college students through skill-building workshops built on three pillars: Financial Well-Being, Personal Wellness and Career Readiness. High schools in 23 states will require students to pass a Financial Literacy course to graduate starting in 2027. Popular payments app Venmo has recently created a content series, Money Talks, to make complicated financial conversations accessible to all.

The tides are turning. But access to programs like these remains the exception, not the norm.

This is a partnership moment

Today, financial institutions—educational, corporate or otherwise–have the rare opportunity to take a leadership role in culture. Instead of pushing the same products or conventions to the next generation of consumers, companies and organizations can educate and support youth, helping give back control of their financial futures. While some organizations have begun offering such tools, we have to recognize when a moment calls for more holistic support.

As with most issues paramount to Gen Z, the calls for change and improvement are explicit, even if we’re not all behaving accordingly. More can be done to help curb Gen Z’s emotional spending and facilitate financial wellness that ultimately stands to benefit us all.

If we can’t collectively snap out of it, there could be a much bigger cost than debt alone.