Gen Z is cutting spending but retirement savings are still constrained by living costs: BofA

The youngest cohort of American adults is caught between growing financial ambition and an economic reality that keeps moving the goalposts.

Bank of America has just released the findings of a survey of 1,133 adults ages 18 to 29 that highlights how Gen Z is increasingly self-reliant and savings-minded, but still squeezed by housing costs, insufficient wages and a lingering sense that the financial odds are stacked against them.

"The effort and outcome aren't always connected — and for a lot of young people right now, that's a frustrating reality," Matt Gellene, Head of Consumer Investments and Employee Banking and Investments at Bank of America told InvestmentNews. "They're cutting back on dining out, picking up side hustles and starting budgets, so clearly the discipline is there. But when nearly half of Gen Z still points to the high cost of living as their biggest barrier while wages aren't keeping pace, you have to see that the math just isn't working in their favor."

The 2026 Better Money Habits report reveals that 42% of respondents say they are living paycheck to paycheck, and the pressure doesn't let up as income rises. Nearly half of those earning between $50,000 and $100,000 annually report the same struggle, and even 29% of those making over $100,000 say they can't seem to get ahead between pay periods.

The high cost of living was cited by 49% of respondents as a top barrier to financial success; a figure that has barely budged across four consecutive years of the survey.

Housing affordability

Housing is a growing part of that story with 17% saying they now spend more than half of their monthly paycheck on housing costs, up from 13% in 2025 and 10% in 2024. Close to a third cite rent or housing as a top barrier to financial success altogether.

Middle Gen Z (ages 23 to 25) appear to be bearing the heaviest burden, with 51% reporting they live paycheck to paycheck, a higher rate than either the youngest (36%) or oldest (43%) segments of the generation.

Gellene points to a specific inflection point that explains the squeeze.

"That age is really when the training wheels come off," he said. "Younger Gen Z (18-22) still have a cushion — many are in school, living at home and more than half (51%) receive financial support from mom and dad. However, by their mid-20s, parental support drops to less than a third, and by their late 20s, under one in five are still withdrawing from the bank of mom and dad. As the support fades and the full weight of independent living — rent, debt, groceries and health insurance — hits all at once, usually on an entry-level salary, Gen Zers 23-25 find themselves caught between a rock and a hard place."

That pattern is reflected in the data. Only 34 percent of Gen Z overall continues to receive financial assistance from parents or family members, down from 46 percent in 2024. Broader support from any source has similarly declined, with 41 percent receiving some form of assistance this year versus 54 percent two years ago.

Despite the strain, the generation is taking meaningful action with 69% saying they made changes to cope with rising costs over the past 12 months including cutting back on dining out, skipping social events, switching to lower-cost grocery stores, and picking up a side hustle.

Retirement planning

Savings rates are also trending upward. Two thirds of Gen Z say they are currently saving, up from 60% in 2024.

Retirement vehicles are gaining modest traction, with 22% now contributing to a 401(k), up from 19% in both prior years. When asked what they would do with an extra $300 a month, 54% said they would put it into savings — a higher share than any other generation surveyed, including Baby Boomers at 45% and Gen X at 40%.

But retirement savings remain thin even among higher earners. Just 26% of Gen Z with household income above $100,000 contribute to a 401(k), and only 23% contribute to a traditional or Roth IRA.

Gellene sees the gap as a prioritization problem more than an income problem.

"The saving instinct is genuinely there, and it's been growing for years," he said. "But when you look at what they're saving for — emergency funds (33%), major life events (37%), paying down debt (29%) — these are short-term goals driven by immediate pressures. Retirement feels abstract when you're still working on building a financial floor. What's telling is that even higher earners in this generation underinvest in retirement, so it's not purely an income problem, but a prioritization problem shaped by circumstance.”

He added that the encouraging sign is that contributions climb meaningfully as Gen Z ages through their 20s. The intention is there; it's just about creating enough breathing room to act on it.

Thirty percent of Gen Z report experiencing financial stress, and 41% say they deal with financial guilt at least once a week. When stressed, 37% admit they avoid thinking about money altogether — a notably higher avoidance rate than older generations. Yet 92% still treat themselves to small purchases to mark good days or cope with bad ones, and 58% of those who indulge say they sometimes spend more than intended.

For advisors, Gellene cautions against misreading the "little treat" phenomenon as simple recklessness.

"Gen Z loves a little treat, and that's not inherently a bad thing. Small rewards are a healthy part of how people get through the week. And for a generation carrying real financial stress, a mood boost here and there makes complete sense. The issue isn't the treat itself; it's when the behavior quietly becomes a habitual pattern that chips away at bigger goals," he said. "For advisors working with Gen Z clients, there is an opportunity to help them find a better balance. Not by telling them to stop cold turkey, but by helping them see how discretionary spending fits into the broader picture. Losing sight of your emergency fund or long-term savings because of consistent overspending is where it gets costly. The conversation is less about restriction and more about intention, and for a generation that already carries a lot of financial guilt, framing it that way can make all the difference."

Financial conversations

On the social front, financial conversations are becoming notably more normalized among this cohort.

Sixty percent report discussing money openly with friends, covering topics from what they can and cannot afford to salary figures, financial stress, and monthly expenses. Women are more likely to have these conversations than men — 68% vs. 52%.

Forty-two percent say they practice what the report calls "loud budgeting" — openly declining social invitations and admitting it's because they cannot afford to participate.

Gellene sees this cultural shift as significant.

"Gen Z is known for being more open than older generations on historically taboo topics, and money is no exception," he said. "They're having genuinely candid conversations about salary (27%), financial stress (24%) and what they can and can't afford (28%). The 'loud budgeting' piece is particularly meaningful. Turning down plans and being honest that it's because you can't afford to participate sounds simple, but it's a real cultural shift.”

More than half of Gen Zs who took part in the research spend nothing on romantic dates each month, and 43% say irresponsible spending habits in a partner would be a dealbreaker. It’s a rate Gellene notes is significantly higher than older generations.

"When it comes to money and love, Gen Z doesn't mess around," he said. "Three quarters say financial responsibility is important when choosing a partner, and nearly half call irresponsible spending a romantic dealbreaker, which is significantly higher than older generations. I think what that translates to for this generation is that their financial values are also their personal values. They're not just looking at income, they want someone who's on the same page about how money is managed, spent and prioritized. Money compatibility has become as important as compatibility around anything else."

Nearly a quarter of Gen Z say they are delaying some aspect of dating or relationship progress because of financial pressures — including moving in together, getting engaged or getting married.

Overall, only 27% of Gen Z believe they are on track to be better off financially than their parents; a figure that has held flat for three straight years, and far below the 54% of Baby Boomers who feel the same way.