McKinsey recently reported on broad consumer spending patterns over the past five years post-COVID. The study notes that consumer sentiment is still worse than it was in early 2020 with persistent uncertainty about the economy, but that spending has been resilient. This indicates an overall weakening of the oft-cited relationship between spending and consumer sentiment. A notable trend has been cross-category adjustments, with consumers trading down in one to allow for a splurge in another.
With Gen Z poised to be the largest and wealthiest generation in history, its spending habits are of particular interest. Compared to others, Gen Z self-defines more often through financial security and career achievement rather than life stages like marriage and child-rearing. Young adults are less optimistic about inflation improving or general increases in economic stability. And yet this group still is likely to pay a premium for convenience.
Purchasing was down by 13% in the first quarter of this year among 18-24 year olds, more than for other age groups. The job market is tight for new graduates, and layoffs often hit recent hires first when they occur. Student loan repayments have restarted as well. Credit delinquencies are highest among young adults, and this group saves less than others too, which is likely to have consequences for future wealth.
Financial pressures seem to have made frugality a trend among Gen Z. Some young people share tips and tricks for managing their tight budgets, such as limiting subscriptions and beauty services, ordering kids’ meals, or even dumpster diving to discover treasures in someone else’s discards. Less expensive activities are growing in popularity too, with young consumers trimming their spending on vacations and dating. They cite examples of group pizza-making at home and enjoying free coffee at high-end furniture stores. One young woman even notes that she uses ChatGPT for therapy sessions.
Activities:
- Ask students: Are you worried about the economy? If so, have you made any adjustments to your spending habits?
- Have students research trends like ‘underconsumption core’ and ‘no-buy’ on social media. CBS has a short video here: https://www.youtube.com/watch?v=Iyy2E3RSiyc. What ideas do you find for decreasing spending? Would you try any of them?
- Ask students to form small groups and brainstorm ideas for trimming their discretionary budget. Create a short video, social-medial style, describing how you could do it, how much you could save, and what other benefits you might find.
Sources: McKinsey & Company, (09 Jun 2025) State of the Consumer 2025: When disruption becomes permanent, McKinsey.com. Wolfe, Rachel, (24 Jun 2025) Goodbye Fancy Bar, Hello At-Home Pizza Party: Young Americans Cut Back, Wall Street Journal. Burleigh, Emma, (21 Apr 2025) Gen Zers are so terrified of a recession that they’re ditching doom spending, ordering Happy Meals, and using ChatGPT for free therapy, Fortune.com.
