Gen Z Spends 37% of Their Income on Housing. Here’s Why That’s a Bad Idea | The Ascent
Housing costs are rising, particularly affecting Gen Z, with members under 25 spending 37.3% of their income on housing, surpassing the recommended 30%. The average home price has surged by 27.7% in the past three years, reaching a staggering $431,000. Rising interest rates have further exacerbated the affordability crisis, deterring potential homebuyers, especially first-timers. Rent prices have also sharply increased by 17.8% in urban areas and 25.8% in the suburbs since the beginning of the pandemic.
The 30% housing cost guideline, originating from a government report in the 1980s, aims to prevent individuals from becoming “cost-burdened.” Overspending on housing can jeopardize the ability to cover essential bills, credit card payments, and necessities. Given that Gen Z’s median annual income is $38,325, adhering to this rule proves challenging, making it crucial to find alternative solutions.
Negotiation skills become invaluable if faced with the necessity of exceeding the recommended housing budget. Rent prices can often be negotiated, providing an opportunity to secure a more manageable arrangement. Evaluating current expenses is another strategy, helping individuals identify non-essential subscriptions or expenses that can be trimmed. Additionally, exploring creative ways to boost income through platforms like Fiverr or other gig economy apps can provide a financial cushion.
In a landscape where housing costs are squeezing budgets, these strategies offer practical approaches to navigate financial challenges, even if adhering strictly to the 30% rule is difficult………..
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Rising Dough
How might the current housing affordability challenges impact the long-term financial decisions and priorities of Gen Z and other affected demographics when considering education, career choices, or investment strategies?
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Because of the large portion this could weaken funding for other priorities like cars retirement plan etc and change level of importance for certain things
The current housing affordability challenges Gen Z ability to get further education than a high school diploma, make career choices that they are passionate about, and may not be able to make investments that could support if they can’t find work in the future.
The changing prices of housing will change the financial decisions of gen z, because now they have to prioritize being able to afford a house. This prioritization of housing could prevent gen z from making other important financial decisions they could make otherwise, if it was affordable.
What must be understood is the struggles of wants versus needs. An average individual of Generation Z will most likely be laser focused on a few things when they enter the real world. Their debt, their work, and survival. With the challenges to affording a roof over their heads, it does away with much of what garners consumerism in the United States. Entertainment and luxuries will become something of the past, and they will focus more on stabilizing their life. That is what I feel most of us will do, at the least, when we enter adult life.
So much money going toward housing makes it difficult to save or put money toward other things such as a car they may need.