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Money Matters

Young Americans Are Paying the High Cost for Inflation

Inflation is hardly a new phenomenon, but factoring in high costs of living and student loan debt, American millennials and Gen Zers are more financially stressed and insecure than ever before.

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Donnisha Brown says she wears a mask in the grocery store, not only to protect herself and fellow shoppers from Covid-19 but to covertly mutter, “Who the hell got enough money to pay for this food?” without detection. Over the last few months, the 27-year-old has clocked the jump in price for food—and for gas and her homeowner’s association fees, too.

“I go into a grocery store, I get a case of water, get some bread, some meat, and it’s $100,” Brown says.

The $57,000 she earns a year working in marketing used to cover all the basics — her mortgage, HOA fees, groceries, gas — and then some, including subscriptions to Adobe software and a car wash service, but inflation has made even the essentials nearly unattainable. To help stagger payments for expenses, she opened another credit card to pay for gas and groceries, cut her Adobe and car wash subscriptions, and forgoes mental health treatment because of the high copay. Brown, who lives in Atlanta, says she lacks the confidence to ask for a raise even though she says she needs one. “Inflation came and hit me like a truck,” Brown says.

Inflation rose to 8.3 percent in April, according to the U.S. Bureau of Labor Statistics, a rate not seen since the early 1980s. While inflation is hardly a new phenomenon, millennial and Gen Z Americans, who are experiencing a stark rise in prices for the first time in their adult lives, must now contend with a higher cost of living on top of compounding challenges.

Compared to previous generations, younger Americans, by and large, faced unique hurdles when attempting to build wealth in the aftermath of the Great Recession. “There has been an increase in folks in surveys saying they are financially stressed, they are financially anxious, and this has increased over the generations,” says Danetha Doe, a financial wellness educator. “I believe this has been because of a rise in cost of living and how much it has outpaced the rise in wages and salary.”

According to Pew Research Center, the average wage, accounting for inflation, is about the same as it was 40 years ago. Inflation-adjusted wages for the median Black worker has risen by less than one percent in the last four decades; inflation-adjusted wages for the median Hispanic worker has fallen by two percent. Further, the federal minimum wage has not increased from $7.25 in over a decade. According to a 2019 study, 44 percent of workers qualified as low-wage employees. Women, especially women of color, represent a majority of this low wage workforce.

On top of stagnant wages, many young Americans are crippled by student loan debt. One in eight Americans carries student loan debt averaging $59,042; 25- to 34-year-olds are the most likely to have student loan debt, but 35- to 49-year-olds carry the most debt. If this demographic hopes to buy their first home, they’re looking at a market in which home values have outpaced inflation by 150 percent since 1970 — the average price tag on a house is $408,100. Renters are feeling the pinch, too: Prices on new rental listings jumped by 14 percent in 2021.

The burden of inflation largely falls on lower income households, who, research shows, experience more financial hardship due to inflation compared to middle- and upper-income households.

Despite wage growth in areas like leisure and hospitality, the average U.S. worker saw a pay cut due to inflation over the last year. In December, Mike Volfman, a 37-year-old who works for a tech company in New York City, secured a 13 percent raise, bumping his salary from $110,000 to $125,000. In the first weeks following the raise, Volfman says he was excited to use the extra money for vacations, buying a car — even taking seriously the conversation of having a child with his fiancé. Quickly, over the course of 2022, however, the raise began to cover less and less. “I feel like I’m back where I was six months ago,” Volfman says. The sticker shock of dining out in New York City has been the most noticeable, he says: Lunch used to cost him $8, now he spends $15; dinner at a restaurant for him and his fiancé used to run $75-100, and now the couple spends $150. Volfman acknowledges his high salary puts him in a better position than most, but he’s prepared to ask for a larger raise at the end of this year.

In a sales position largely dependent upon commissions, Amanda Veinott, 33, didn’t ask for a raise, but now works 14-hour days three days a week to earn six figures. Though she and her husband own their Morris County, New Jersey home where they live with their two children, the cost of oil to heat the house rose from $400 when they moved in about a year ago to now $750. “I feel like I sound like my mother all winter long: ‘Put on a sweatshirt, you don’t have to have the temperature so high. No, you don’t need to have it at 70 degrees, 68 is fine, go put socks on,’” Veinott says. To blunt the cost of expensive groceries, Veinott planted a large garden this spring; she says she’ll allocate the money saved from produce toward meat items.

The cost of supporting a family under inflated prices is exacerbated by the $150,000 she has in debt from her retail business, which closed in 2020 due to the pandemic. Veinott says she and her husband are “HENRYs”—high earners, not rich yet—but inflation and debt prevent them from accruing wealth. “That $200,000 in our parents’ day… would’ve compounded a lot faster, but because costs are so expensive, we’re stuck in the HENRY category,” she says. “We might be HENRYs until we’re 50 years old. Whereas if our parents were HENRYs at our age, they would’ve been wealthy, like a million dollar net worth or more, by the time they were 40.”

Jaime Peters, assistant dean and assistant professor of finance at Maryville University, fears the financial situation for young people will only get worse. “The cure for inflation oftentimes is increasing interest rates,” Peters says. Between rising and variable interest rates on student loans and mortgages, plus inflation, which will minimize any early career raises, young people are in a difficult spot financially. “You finally get that promotion and it’s not going to adjust to the living standard you were hoping for,” she says.

Despite his best intentions, skyrocketing prices are deterring freelance videographer Yordanos Haile from making plans for the future. Haile, 26, lives with his mother in Houston in a home that’s paid off, he says, which helps keep his cost of living down but the expense of life outside the home is impacting his choices. Haile previously worked as a behavioral therapist and would like to pursue his masters in psychology, but the cost of higher education, especially paired with inflation, is a deterrent. “The idea of accumulating more student debt, which in turn accumulates more money from interest, while the cost of everything else is increasing is simply displeasing,” he says. At the end of the day, he realizes price hikes in areas like gas and food are a part of life, and instead, prioritizes his spending in terms of what makes the most impact to his mental health, opting for a trip to the spa over a night at the bar with friends.

Despite the difficulties inflation poses, Haile helps financially support family members who live in Ethiopia when he can, which creates perspective. “It’s understanding how inflation can be worse as well [in other countries],” Haile says. “It makes you have some sort of gratitude toward the whole situation.”

Still, as young adults grapple with the real-world implications of inflation for the first time, some are incredulous considering how rapidly costs have risen. During the Great Recession of 2008, Donnisha Brown, the marketer from Atlanta, remembered her grandmother remarking on the precarity of the economy. She was just a kid then, she remembers thinking “recession” was a funny word. Now, Brown says she understands her grandmother’s exasperation. “To be living it now, there’s no other word to describe it as just crazy.”

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