By Steve Tepper, CFP®, MBA, and ChatGPT
Generation Z, like any other generation, has its unique financial challenges. But the unusual combination of specific and sometimes extreme issues has left many in Gen Z in poor financial shape compared with members of previous generations at the same point in life. Those factors have made the goal of home ownership seem a remote possibility for many young people today.
The artificial intelligence over at ChatGPT tells me some of the challenges for Gen Z include:
Student loan debt: Many members of Gen Z are still in college or have recently graduated, and they face record-high student loan debt levels. This can make it difficult to save for a down payment on a home or to build a strong financial foundation.
Gig economy work: Many members of Gen Z work in the gig economy or in non-traditional jobs that may not offer benefits such as health insurance, retirement plans, or stable income. This can make it challenging to plan for the future and save money.
Rising rent: Inflation remains persistent, especially in urban areas. While those already owning real estate are largely immune from spiking housing costs, young people paying rent are getting squeezed financially. According to rent.com, the national median rent has increased 18.41% over the last two years, adding more than $300 to the average rent.[1]
Digital financial tools: While digital financial tools can make it easier to manage money, they also make it easier to overspend and accumulate debt. Gen Z must learn to balance the convenience of digital tools with the discipline needed to manage finances effectively.
Economic uncertainty: Gen Z came of age during the Great Recession and has experienced economic uncertainty and volatility throughout their lives. This has led many to be more cautious with their money and to seek financial stability rather than taking risks.
Facing these abundant headwinds, what can young people do to make positive steps toward homeownership? Here are a few ideas:
Build credit: Building a good credit score is important when buying real estate. Lenders look at credit history to determine the ability to repay a mortgage. Start by paying bills on time, opening a credit card account and using it responsibly, and keeping credit utilization low.
Save for a down payment: This may take some time, but it’s an essential step toward homeownership. The larger the down payment, the more likely you will be approved for a mortgage, and the lower your monthly payments will be.
Get pre-approved for a mortgage: Before you start looking for properties, get pre-approved to understand how much home you can afford. Pre-approval will also make you more attractive to sellers.
Consider co-buying: If you can’t afford to buy a property on your own, consider co-buying with family or friends. Co-buying can help pool resources and increase your chances of being approved for a mortgage.
Look for first-time homebuyer programs: Research benefits offered by the government to first-time homebuyers that can help you get into the property market. These programs may provide financial assistance, reduced interest rates, and other incentives.
Start small: Buying a small property, such as a studio apartment or a small condo, can be a great way to enter the property market. As you build equity, you can gradually move up to larger properties.
Most of these ideas suggest a marathon, not a sprint. It may be a long slog to get to a position to afford a down payment, the monthly mortgage, and other expenses that accompany home ownership, such as repairs, maintenance, and association fees.
For all of these reasons, it’s important to keep your savings invested with a goal of outpacing inflation, particularly the cost of real estate, so that the rise in house prices over time doesn’t leave you racing toward a finish line that moves further away. It’s essential to do your research and seek professional advice before making any decisions.
FOOTNOTES
[1]A Monthly Look At Rent Price Trends Across The United States by Jon Leckie, rent.com, February 17, 2023