'Doom spending' instead of home buying—how young people are spending their money

Report: Gen Z can't hold onto money

A new report details results showing Gen Z can't hold onto money. LiveNOW from FOX's Mike Pache takes a deeper look.

As inflation and economic uncertainty intensify, compounded by growing concerns over climate change, a new financial behavior known as "doom spending" has been taking root among younger generations over the past few years.

This trend, predominantly observed in Gen Z and millennials, reflects how these individuals manage their finances amid fluctuating economic conditions and an increasingly unpredictable environmental future.

In a December 2023 interview with the New York Post, NYC-based financial content creator Maria Melchor, 27, noted that while younger people may seem to afford more luxury items compared to older generations who saved for houses while subsisting on inexpensive food like Top Ramen, in reality, they invest in these luxuries because they can't afford more significant commitments like home ownership.

"When older people ask me how younger people are affording nice things, I tell them it’s because we can’t afford anything else," Melchor said.

"Home ownership or starting a family is so out of reach," Melchor continued. "We’re using that down-payment money or kid money to give our dogs the most enriched puppyhood they can have."

Since the traditional American dream of owning a home with a white picket fence and a big yard is increasingly out of reach for many younger generations, they are redirecting their spending to other areas.

What is "doom spending?"

"Doom spending" refers to making impulsive purchases despite financial instability or future uncertainties.

This phenomenon is not just about buying luxury items; it's often about acquiring goods individuals believe will offer them comfort, security, or enjoyment in an increasingly unstable world.

A 2023 Credit Karma study found that 96 percent of Americans are concerned with the state of our economy, and about 27 percent are "doom spending" to cope with the crisis.

Psychologists and financial experts link this behavior to the broader sense of unease affecting these generations, who have lived through multiple significant crises, including the 2008 economic collapse, the COVID-19 pandemic, and now, soaring inflation rates.

Economic pressures shape spending habits

Recent surveys indicate a shift in spending habits among these younger cohorts. While discretionary spending has generally decreased, there is a notable uptick in spending on entertainment, home improvements, and comfort items such as gaming systems and luxury bedding.

This shift suggests that while Gen Z and millennials are cautious about their financial futures, they also prioritize immediate happiness and quality of life in their budgeting.

A recent viral video featured a frustrated Gen Z American detailing his "struggle to survive" and manage the costs of everyday items.

"Can somebody explain to me in crayon-eating terms why I make over three times the federal minimum wage and I cannot afford to live?" the user named Nic started to say.

"And I do not want to hear the ‘Pull yourself up from your bootstraps, work 90 hours a week.' That's not the goal, guys," he continued ranting. "A one-bedroom apartment, $1,800. Two-bedroom apartment, $2,200. Who the f*** can afford that? It is embarrassing to come out and say that it is a struggle to survive right now. But I know so many people are struggling."

The current federal minimum wage is $7.25 per hour.

Meanwhile, an Intuit Credit Karma report published earlier this year found that 24% of renters say they can't afford rent.

Cost of living makes retirement savings harder for younger generations

A March report from Fidelity Investments reveals that over half of millennials and Gen Z anticipate escalating living costs, making saving for retirement more challenging. Specifically, 57% of millennials and 56% of Gen Z expressed this concern, contrasting to 38% of Gen X and only 16% of Boomers.

By 2025, Gen Z is projected to make up 27% of the workforce. However, with more than one in four expressing a lack of confidence in their financial knowledge and skills, this generation is the least financially confident.

This uncertainty is evident in their investment preferences; a separate survey from WalletHub found that 57% of Gen Zers favor savings accounts as their investment choice, compared to 46% of Baby Boomers who prefer stocks. This preference for safer options reflects Gen Z's cautious approach to financial risks and their strong desire for stability.

WalletHub analyst Cassandra Happe comments, "Every generation except Gen Z agrees that the stock market is the best place to invest their money… understandable given how attractive high-yield savings accounts and CDs have been recently, but investing in stocks or mutual funds still is key for long-term growth."

Financial advice for uncertain times

Experts suggest that while "doom spending" can provide temporary relief, it's crucial to maintain a balanced approach to personal finances. Recommended strategies include:

Setting a budget for discretionary spending: This helps in managing finances without compromising the ability to enjoy life.
Prioritizing savings: Regularly contributing to savings accounts can provide a safety net that brings peace of mind.
Exploring diverse investment options: Diversifying investments can reduce risk and increase the potential for returns over time.

While "doom spending" reflects a coping mechanism amid economic uncertainty, Gen Z and millennials are not shying away from the importance of financial planning and savings.

As these generations navigate these turbulent times, their unique approach to balancing spending with saving highlights their adaptability and resilience.