55% of Gen Z say finances have forced them to delay life plans

Housing costs seen as biggest barrier to financial success

Small indulgences remain a spending priority

Coffee shop spending up more than 25% in a year

[123RF]
[123RF]

They may put off marriage and children, but they will happily spend $10 on a matcha latte.

Amid high prices and mounting housing costs, a growing number of American Generation Z consumers are embracing what is being called the "little treat economy" — a pattern of spending small amounts on coffee, desserts and other modest pleasures for immediate gratification, even as larger financial goals get pushed further out of reach.

According to a Bank of America survey cited by CNBC on Wednesday (local time), 92 percent of Generation Z respondents said they reward themselves with small treats to lift their mood on hard days or to celebrate good news.

Coffee and desserts lead the way. The rate at which Generation Z increases spending on ice cream and bakery products per purchase is twice that of other generations. Their spending at small and mid-sized coffee shops also rose more than 25 percent compared with a year earlier.

CNBC described the trend as the "little treat economy" — a pattern of sustained spending on affordable luxuries such as a $10 oat-milk matcha latte that carry little financial weight on their own.

Behind the rise of small indulgences lies the harsh economic reality Generation Z faces.

A Deloitte survey this year of more than 22,500 Generation Z and millennial respondents across 44 countries found that 55 percent of Generation Z said they had delayed an important life decision for financial reasons — including starting a family or pursuing further education.

Housing costs weigh heavily as well. A separate Bank of America survey found that 29 percent of Generation Z identified rent or housing costs as the single biggest barrier to financial success. According to credit reporting agency Experian, Generation Z spends an average of 51.9 percent of its income on rent — far above the commonly recommended threshold of 30 percent.

[Getty Images Bank]
[Getty Images Bank]

Many in the generation struggle to cover even basic living expenses on their own. A Federal Reserve survey found that last year, 24 percent of adults aged 18 to 29 were unable to pay their bills in full during the month before the survey. Another 47 percent said they had received financial help from someone outside their household in the past year to cover routine costs such as a phone bill, rent or utilities.

Yet Generation Z has not cut back across the board. A KPMG survey found that Generation Z households allocate 22 percent of their income to non-essential products and services such as travel and dining out — the highest share of any generation.

Bank of America noted that while Generation Z tends to start saving for retirement earlier than previous generations, its ratio of savings to spending is the lowest of any generation — a sign that spending on present-day satisfaction persists even under the weight of housing and living costs.

The tendency to trade down from big-ticket items like cars and homes to relatively affordable luxuries such as lipstick during economic downturns is known as the "lipstick effect." CNBC framed Generation Z's little treat economy as a similar phenomenon.

The difference, however, is that Generation Z's small indulgences appear to have moved beyond a recessionary quirk and into an everyday spending habit. Bank of America's recent analysis found that despite limited savings capacity, Generation Z continues to prioritize spending that delivers immediate satisfaction — coffee, travel and beauty among them.

CNBC cautioned against dismissing such spending as pure waste. Small treats can be a relatively low-cost way to find satisfaction when housing and living expenses are squeezing budgets. Repeated small purchases, however, can make total spending harder to track than a single large outlay.

The spending habits of American Generation Z — stretching to cover big-ticket necessities like housing, family and education while still making room for daily pleasures — are creating a new kind of market. A $10 matcha latte has become a symbol of a generation that refuses to give up on present-day satisfaction, even as the bigger milestones of adult life remain out of reach.


sjy@heraldcorp.com