Generation Z thinks it needs $500,000 a year to succeed. What that says about our economy.

MW Generation Z thinks it needs $500,000 a year to succeed. What that says about our economy.

By Venessa Wong

As economic inequality worsens, many young Americans feel they must reach ever higher for the stars to be financially successful. The new dream salary: more than $500,000 a year.

Arumandhira Howard and her fiancé together earn more than $200,000. The 28-year-old knows that's more money than the vast majority of Americans make, yet the Los Angeles couple still live about half an hour's drive from the pricier neighborhoods where most of their friends live. They pay $4,000 a month in rent, on top of her $450 student-loan payment, their $400 car payment and the $200 she sends home to her family in Indonesia each month.

"It's comfortable, but you still have to make some sacrifices" at their income level, Howard told MarketWatch. The "zillennial" - she's at the cusp of the millennial generation and Gen Z - sets aside 10% of her income for retirement and has a healthy monthly budget of $500 for entertainment and dining out, which she said comes with a side of guilt as bigger financial goals continually loom over her and her partner. "I'm not saying my life is so tight and I'm 100% stressed about money," she said, but she would like to enjoy comforts such as travel and concerts while also being able to save more quickly for goals like homeownership.

These ambitions, however, seem farther and farther out of reach each year, leaving her feeling discouraged. Howard said her parents bought a house in California in 2020 for about $450,000, and its value has already increased to more than $600,000. Nationwide, the median home sale price is up by 28% compared with before the pandemic. "My mom's like, 'You need to save up and get a house as soon as possible, because you don't know how much more it's going to cost in a couple of years.' But I can't even imagine," she said.

In this economy, she said, a household income of $500,000 between two people "would be very comfortable."

Only the top 5% of households and roughly the top 1% of individuals earn that much. Yet in a recent survey of 2,203 U.S. respondents by the financial-services company Empower, the average annual salary that adult Gen Z respondents said it takes to be financially successful was $585,797 - more than twice the average amount cited by all respondents, including millennials, Gen X members and baby boomers. In interviews, some Gen Z-ers told MarketWatch they would be happy to earn $500,000 as a household.

Statistically, it is unlikely that the vast majority of Americans will ever make that much. Howard said she knows it seems unrealistic to peg "financial success" to an income that is, for almost everyone, unachievable. "But there's something difficult about the idea of being middle class" right now, she said.

As economic inequality continues to rise, young Americans are left with a choice between settling for less and setting their sights higher. For Gen Z Americans, born between 1997 and 2012, wealth and income inequality have been a defining feature of the society in which they grew up: The share of wealth held by middle-income Americans has continued to shrink, while the cost of basic necessities such as housing, education, child care and healthcare have risen dramatically. For many, middle-income status no longer guarantees financial security, a reality that many young people personally confronted through the Great Recession and then the pandemic-related economic downturn.

'There's something difficult about the idea of being middle class.'Arumandhira Howard, age 28

As a result, more people have started to believe that being not just comfortable but truly successful requires making more money than most people will ever see in their lifetimes, younger Americans said in interviews with MarketWatch. A life of steadily grinding away at a career, as their parents and grandparents had done, no longer seems like a viable path to success. What many young Americans are seeking instead is some degree of financial independence through both income and investments.

Howard immigrated to the U.S. when she was 11 years old, in the aftermath of the global financial crisis. Her mother supported two children and her own mother by working in low-wage food-service jobs. "That was my very first experience with hardship. My mom had to ask her co-workers to give us canned food because we couldn't afford to go to the grocery store," Howard said.

In response to this scarcity, Howard aspired to one day earn a high income as a CEO. But the pandemic changed that: She saw people suddenly die at a massive scale, and while she still understood the value of being a high earner, dedicating her life to patiently climbing the corporate ladder lost its appeal.

"I understand why people want to make $500,000 - either to retire as quickly as possible or, at the very least, while you're working, to be able to enjoy your life and pay for the things that you know make you happy," she said.

While she doesn't want to seem ungrateful for all that she has now, Howard said, "there is some force that's telling us, 'No, you can do more,' " whether it's social-media influencers showcasing luxurious lifestyles and investing strategies or the deeply held mindset many immigrants have that, in America, there's always more money to be made.

Is Gen Z 'delusional' or just more aware of inequality?

In a discussion on Reddit of Gen Z's half-million-dollar salary aspirations, critics dismissed their responses in the Empower survey as "delusional" and warped by unrealistic representations of life shown on TikTok. Yet in interviews, people said the economic climate they grew up in has shaped their perspectives as much as social media.

The oldest members of Gen Z were on the cusp of adolescence during the Great Recession, a period that saw the unemployment rate reach 10% in October 2009. As many Americans continued to reel from the fallout of the financial crisis, the grassroots movement known as Occupy Wall Street spread around the country in 2011 in protest of corporate greed and economic inequality. Its slogan, "We are the 99%," focused on the suffering of everyday people as a result of what its supporters saw as the errant ways of the wealthiest 1% of Americans. The movement framed the conflict as one between Main Street and Wall Street, turning economic inequality into a topic of mainstream interest.

"It was a front-row seat to how much economic inequality existed in the world," Haley Sacks, a financial educator and influencer known as Mrs. Dow Jones, told MarketWatch. Occupy Wall Street "was about a system that really felt rigged, and how the rules of money often favor those who already have wealth," she said. While many members of Gen Z were too young then to remember this period now, she said, the lasting lesson that permeated some corners of the American psyche was that in an "oppressive system," the best way to protect yourself is to understand "the rules of money."

As Sacks sees it, earning $500,000 a year is by no means the threshold to the attainment of a good life - people can live very well on less - but Gen Z's association of financial success with that mid-six-figures annual income says less about a desire for private jets and luxury than about the need to "buffer against uncertainty" and feel in control.

In Empower's survey, irregular or insufficient income streams were seen as the biggest barriers to achieving financial success by 72% of Gen Z respondents, followed by economic uncertainty at 68%. In contrast, just 30% and 35% of respondents from all generations cited those as the biggest barriers, respectively, according to data provided to MarketWatch.

"Gen Z is coming up in an era marked by economic instability," Rebecca Rickert, author of the study and head of communications at Empower, told MarketWatch. "They foresee a world in which they'll need a big cushion to make it, which may influence everything from career choices or job satisfaction to investment decisions." The net worth the average Gen Z respondent said would correspond to financial success was $9.5 million.

See also: What's stopping you from achieving the American dream? Money - and here's how much people say they need.

Despite economic headwinds, 71% of Gen Z members said they believe they will achieve financial success in their lifetimes, and they are taking action toward that goal. In a separate Charles Schwab survey released earlier this year, Gen Z respondents said they started to save and invest at age 19, on average, much younger than the average boomer respondent, who reported starting at age 35.

"I think Gen Z's ambition is amazing," Sacks said.

Growing awareness about inequality has not led to much progress in narrowing it. Even with some headway being made since the pandemic, annual earnings for the bottom 90% grew just 44% between 1979 and 2023, while earnings for the top 1% increased by 182%, according to the Economic Policy Institute, a left-leaning think tank.

The rewards for making it into the top tier of earners grow ever larger, and the challenges for those who don't arrive there seem more and more inescapable. Parents rightly encourage their children to shoot for the stars, but soaring inequality has pushed the stars farther into the stratosphere as the air got thinner for everyone, leaving many gasping.

Taylor Price, a 24-year-old personal-finance influencer and founder of the financial-literacy company Priceless Tay, told MarketWatch she has seen "rising costs and stagnant wages in relation to the cost of [college] tuition, and it creates a lot of barriers to financial stability."

"I don't really think it's about surviving anymore with Gen Z," she said. "Gen Z wants to thrive, and that includes financial freedom, flexibility and security."

(MORE TO FOLLOW) Dow Jones Newswires

December 21, 2024 06:41 ET (11:41 GMT)

MW Generation Z thinks it needs $500,000 a year -2-

Zack Littlejohn, a 24-year-old completing his master's degree in cultural anthropology, works at a thrift store and lives at home in Brooklyn with his parents, an arrangement he described as "very Gen Z." He's not wrong: 45% of adults ages 18 to 29 lived at home with their families in 2023, an 80-year high, according to a Harris Poll for Bloomberg survey. This year, 57% of adults ages 18 to 24 lived in their parental home, Census Bureau data showed.

"I think that there is, amongst my generation, a very profound sense of instability and of uncertainty," he said. He watched his own parents, who once had "solid corporate jobs" in television and in product design, shift to freelance work as their employers reorganized and cut entire departments, he said.

Many components of the American dream - homeownership, car ownership, retirement, college - "increasingly are unaffordable," Littlejohn told MarketWatch. As a result, he and many of his peers feel there is a "massive disconnect" between the realities they face and prospects for a stable, secure life, he said.

This cohort watched many millennials who pursued college degrees and white-collar occupations as their tickets to "a solid middle-class life" struggle with student loans and jobs in unstable industries, he said. So younger people sought other avenues: "People in high school and in college were very engaged in the hustle, day trading, crypto," influencing and drop shipping, a business model in which people sell products but have a third party handle the storage and fulfillment of orders.

'I don't really think it's about surviving anymore...Gen Z wants to thrive, and that includes financial freedom, flexibility and security.'Taylor Price of Priceless Tay

These have become common pursuits: Cryptocurrency was the most common investment among Gen Z members surveyed by the CFA Institute, an educational organization for financial professionals, and 48% of Gen Z respondents told Bankrate this year that they have a side hustle, a higher rate than every other age group. "It's really the same process, different components" in pursuit of financial stability, Littlejohn said.

Due in part to these economic conditions, Littlejohn added, he wants "a career in which I can travel a lot and live abroad, because I don't really want to stay in America too much longer."

Real life at $500,000

Young people now have windows into the lives of the rich through social media, which encourages many to benchmark success to the versions of real life people choose to display on the internet. MarketWatch spoke with people whose households have reached the $500,000-a-year mark about what life is like at this income level, and whether they feel financially satisfied.

Jake Wright, a 33-year-old who works for an e-commerce software company, and his partner, Matt Sutherland, a communications specialist, together earn more than $500,000 a year, placing them among America's top 5% of households in terms of income. Before the social-media era, "a lot of the expectation was probably set in your community. You'd look at your neighbors and your parents" to determine your definition of success, said Wright. As social-media platforms bombarded users with content from celebrities and other wealthy people farther from home, "it just changed everyone's relative perceptions," he said. They learned to dream bigger.

Wright and Sutherland's income allowed them to buy a two-bedroom apartment in Manhattan. They eat out two to three times a week, and travel domestically about once a month and internationally about four times a year.

Without a doubt, they enjoy a life with luxuries, but, they said, they also felt financially comfortable when they made less. At a $110,000 income, Sutherland lived with a roommate in Brooklyn, but he was able to travel and started saving. He said this was the first time he was able, with some intentional management of his money, to do everything people "should" be doing financially.

The next step up came when Sutherland hit a $175,000 income. At this point certain luxuries, like flying business class "if I found a good deal" or eating at nicer restaurants, actually became affordable - meaning he could pay for them without compromising in other areas. Wright said those luxuries became affordable when his income hit $150,000.

'When you hit a certain level where life can be comfortable, I think that's successful.'Matt Sutherland

By the time they became a couple, Sutherland and Wright were each earning more than $200,000. With their combined income today above $500,000, Sutherland said, he feels financially successful - although he still hopes for more.

"It feels lucky. It feels privileged," he said. "But [our position] does not feel invincible by any stretch of the imagination." They still budget. And they still have other goals, such as buying a second home and starting a local business, like a grocery store. "Even hitting this level, it doesn't give you everything," Sutherland said.

They will welcome their first child by surrogate soon. Despite his own financial ambitions, Sutherland said, "I would hope that she feels successful making less than $500,000, genuinely." He added, "When you hit a certain level where life can be comfortable, I think that's successful."

Jennifer Stojkovic, a 34-year-old venture capitalist, said while the world is changing and income inequality in the U.S. is sprawling, it is not impossible to become wealthy if people understand how to get there - it can be achieved without a college degree and in the skilled trades, she said - and if they start saving and investing at a young age.

"The opportunities that once existed and the cost of living that once existed [for boomers] all but disappeared for millennials and are gone for Gen Z," Stojkovic told MarketWatch. As a result, for many young Americans, "accumulating wealth as early as possible is a very important aspect of their professional and personal success in this changing economy."

Stojkovic and her husband together earn more than $500,000 per year. It's multitudes more than they grew up with: Stojkovic's mother worked as a cashier, and her father, who is blind, was a stay-at-home dad; her husband, a war refugee, lived in a motel room in Florida as a child.

Like many people her age, her dream had been to make $100,000 a year - but when her annual income did hit six figures, she and her husband lived in a 400-square-foot San Francisco loft that cost nearly $4,000 a month to rent. "At the height of the tech boom, we were barely scraping by," she said. They packed Tupperware lunches and walked to work to save money.

'You can't just rely on salary.'Jennifer Stojkovic

In major cities, she said, "making at least $400,000 a year is when you can start to feel more comfortable." They began to aggressively save and invest, including in bitcoin. During the pandemic, they left San Francisco and moved around for two years, spending time in Florida and Mexico before settling in Los Angeles, where they found the cost of living lower than in the Bay Area.

The couple, followers of the FIRE movement - financial independence, retire early - quickly hit their $2 million net-worth target with a portfolio that generated multiple streams of income from rental properties, businesses and other sources. "You can't just rely on salary," she said. While they could have stopped working, "we decided to keep going."

As more wealth flows up to the 1%, she added, what we have today is "a society that's very focused on how to go for the stars."

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Venessa Wong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 21, 2024 06:41 ET (11:41 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.