Why Young People Are Struggling Financially—and What We Can Do About It

Today’s younger generations are facing an unprecedented financial crisis. For Millennials and Gen Z, debt has become a defining feature of their lives, reshaping everything from lifestyle choices to long-term financial security. As costs of living surge and wages stagnate, these generations are grappling with a debt burden that previous generations largely avoided.

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The Rising Tide of Debt

Between 2022 and 2023, Millennials’ average debt levels increased by 8%, while Gen Z’s debt soared by over 15%. These increases come as Baby Boomers and even Gen X experience far slower debt growth or slight declines. The debt among Millennials and Gen Z is not limited to student loans but extends to credit cards, with Gen Z facing a particularly severe crisis: their credit card balances are rising faster than any other generation, with about 1 in 7 Gen Z cardholders reportedly maxed out.

The reasons behind this debt increase are complex and interwoven, including stagnant wages, high inflation, steep housing costs, and skyrocketing education expenses. This financial environment has left many young people feeling shut out of the so-called American Dream.

A Wage Crisis in Disguise

One of the biggest challenges younger generations face is that, adjusted for inflation, wages have stagnated or even decreased. A 22- to 24-year-old in 2013 made an average annual income of about $52,000, while today, that number has fallen to around $45,000. In fact, the debt-to-income ratio for this age group jumped from 11.76% in 2013 to over 16% today. For younger Millennials and older Gen Z members, income has barely increased since finishing undergrad, despite pursuing additional degrees and career training.

For many, these flat incomes simply don’t match today’s living costs. Nearly every necessity, from food to housing, has become significantly more expensive in recent years. This reality has left young people increasingly reliant on credit cards just to keep up with daily expenses.

The Housing Conundrum

Housing costs have soared, putting homeownership out of reach for many young adults. The average cost of a starter home now exceeds $400,000, with mortgage rates climbing to 7%, a high not seen in decades. This means that potential buyers need a much larger down payment and face significantly higher monthly payments compared to previous generations. Renters fare no better; nationwide, rents have climbed 30% between 2019 and 2023, while average wages have risen just 20%. Many young people now spend as much as 50% of their income on rent alone, leaving little left for savings or investments.

The Weight of Student Debt

One of the largest contributors to the current debt crisis is student loans. In the past few decades, tuition has soared to heights unimaginable in prior generations. The cost of attending a public university in 1970, adjusted for inflation, was around $10,000 per year, while today, it’s more than double. This has left graduates with massive debt right as they enter the workforce, limiting their ability to save, invest, or pursue life milestones like buying a home or starting a family. In fact, more than half of young adults who took on student loans report delaying key financial decisions because of their debt.

For many young people, this debt is a constant source of stress and anxiety, compounded by the fact that loan payments consume a significant portion of their monthly budgets. As a result, some are beginning to question whether the traditional college path is still worth it, with college enrollment rates declining and many young adults choosing alternative paths.

The Rise of “Doom Spending”

As if the financial pressures weren’t enough, a new behavior called “doom spending” has emerged among young adults. Doom spending is essentially retail therapy with a twist of fatalism—spending on small luxuries to alleviate stress or sadness about an uncertain financial future. Many feel that if they can’t afford long-term financial goals like homeownership, they might as well enjoy what they can in the short term. The internet, particularly social media, has fueled this behavior by exposing young people to aspirational lifestyles that seem increasingly out of reach.

Research suggests that this tendency to splurge in response to financial hopelessness is more common among younger generations. A recent study found that over 40% of Millennials and 35% of Gen Z admit to doom spending as a coping mechanism. This behavior is further encouraged by the rise of “Buy Now, Pay Later” options, as well as other financial products like earned wage access and cash advance apps, which allow consumers to delay payment but ultimately add to their debt burden.

What Lies Ahead: A Call for Systemic Change

The current debt crisis has reached a point where meaningful solutions require action beyond individual budgeting or frugality. To truly address these challenges, systemic changes are needed:

- Wage Reforms: Wage growth must align more closely with inflation and living costs. While minimum wages have increased in some areas, they’re still far below the levels needed to support a sustainable lifestyle.

- Affordable Education: If education remains the path to better financial stability, tuition reform is essential. Solutions could include expanded financial aid, increased support for trade and vocational programs, and innovative paths to make college more affordable.

- Housing Solutions: Young people need policies that address rising housing costs, such as incentives for affordable housing construction, rent control measures, and programs that support first-time buyers.

Without these changes, young people face a future where financial security feels unattainable. This crisis doesn’t just affect Millennials and Gen Z; it has broad societal implications. If younger generations continue to struggle with debt, the effects will ripple out, affecting economic growth, family formation, homeownership rates, and overall quality of life.

The path forward requires an understanding of these unique generational challenges and a commitment to creating policies that make the American Dream attainable once again.

Thank you for your time, and let’s keep the conversation going to build a brighter financial future.