Doom Spending: Are Gen Zers overspending?

Are Gen Zers overspending? Recent insights from Bloomberg suggest that many are indeed indulging in excessive expenditure. Traditionally, when faced with financial challenges, the instinct is to tighten the belt. However, a significant number of young adults seem to be taking the opposite approach, splurging on luxury items instead of saving. This trend, dubbed “doom spending,” is fueled by a sense of hopelessness among Gen Zers, exacerbated by the soaring costs of essentials like food and rent, coupled with a challenging job market, particularly in fields like finance and technology. The burden of student loan debt further adds to their financial woes, with the average borrower graduating with nearly $29,000 in debt.

While the term “doom spending” may be recent, the underlying concept has long been recognized. It suggests that individuals who feel powerless over their financial future are less inclined to save. Yet, as financial experts emphasize, starting to save early is crucial due to the power of compound interest. Interestingly, Psychology Today suggests that “doom spending” isn't merely a response to financial hardship but also a reaction to stress, akin to binge-eating.

Addressing this phenomenon requires a multifaceted approach. Psychology Today offers several practical suggestions, including reconnecting with nature, reducing screen time and social media exposure, minimizing influence from commercial entities, prioritizing low-cost social activities, embracing exercise as a budget-friendly alternative to pricey gym memberships, honing self-control skills, and considering job satisfaction over high pay to alleviate stress-induced spending habits. Ultimately, recognizing the psychological roots of “doom spending” is key to implementing effective solutions.

Causes of Doom Spending:

• Economic Despair: A sense of hopelessness among Gen Zers due to financial challenges.

• Rising Costs: Soaring expenses for essentials like food and rent.

• Job Market Challenges: Difficulty finding employment, particularly in lucrative fields like finance and technology.

• Student Loan Debt: Graduates burdened with significant debt, averaging nearly $29,000 per borrower.
  

Stress Response: Doom spending isn't solely a reaction to financial hardship but also a coping mechanism for stress, similar to binge eating.

Addressing Doom Spending:

• Solutions involve a combination of practical steps and psychological insights.

• Reconnecting with nature, reducing screen time, minimizing commercial influence, prioritizing low-cost activities, exercising, honing self-control, and prioritizing job satisfaction over high pay.

• Recognizing the psychological roots of spending behavior is crucial for effective intervention.

As mentioned, Doom spending isn't solely a reaction to financial hardship but also a coping mechanism for stress. If you're a parent considering college planning options to help your child succeed or simply require guidance to get your financial house in order, reach out to Vince and Patrick at Unifirst Financial & Tax Consultants, to learn more about tax efficient strategies to help you secure your family's financial future.

References:

Cachero, P. (2024, January 31). Gen Z Is Splurging on Luxury Goods to Soothe Their Economic Despair. Bloomberg. Retrieved February 13, 2024, from https://www.bloomberg.com/news/articles/2024-01-31/gen-z-millennials-are-doom-spending-to-cope-with-economic-uncertainty

Cachero, P., & Maglione, F. (2023, December 13). Class of 2024 Can’t Land Jobs as Hiring in Tech, Finance Wanes. Bloomberg. Retrieved February 13, 2024, from https://www.bloomberg.com/news/articles/2023-12-13/jobs-for-college-graduates-class-of-2024-struggles-to-find-tech-finance-roles?leadSource=uverify%20wall

Hahn, A. (Year, Month Day of publication). 2024 Student Loan Debt Statistics: Average Student Loan Debt. Forbes. Retrieved February 13, 2024, from https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/

Lee, B. Y., M.D. (Year, Month Day of publication). 27% of Americans are ‘Doom Spending’ Due to Stress. Psychology Today. Retrieved February 13, 2024, from https://www.psychologytoday.com/us/blog/a-funny-bone-to-pick/202312/27-of-americans-are-doom-spending-due-to-stress

Maximize Savings with Energy Efficient Home Improvement Credit

The IRS is encouraging homeowners to take advantage of home energy credits by making energy-efficient upgrades to their properties. These credits, expanded under the Inflation Reduction Act of 2022, offer financial incentives for investments in eco-friendly home improvements.

Here's what you need to know:

1. Types of Credits: There are two main credits available: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.

2. Eligibility: While homeowners are the primary beneficiaries, renters, and owners of second homes used as residences may also qualify. However, landlords cannot claim these credits.

3. Reviewing Requirements: Before making any purchases, it's crucial to review the requirements and qualifications on IRS.gov/HomeEnergy. Additional information can be found on energy.gov.

4. Energy Efficient Home Improvement Credit: This credit, effective from Jan. 1, 2023, allows for a tax credit up to $3,200, equal to 30% of qualified expenses. Eligible improvements include doors, windows, insulation, and energy-efficient equipment like water heaters and furnaces.

5. Residential Clean Energy Credit: Taxpayers investing in solar, wind, geothermal, fuel cells, or battery storage for their main home may qualify for this credit, equaling 30% of the costs of new, qualified clean energy property installed between 2022 and 2032.

6. Credit Limits and Refundability: There are annual limits to the amount that can be claimed for each credit, and both credits are nonrefundable. However, any excess credit can be carried forward to future tax years.

7. Claiming the Credits: To claim the credit, taxpayers should use Form 5695, Residential Energy Credits, for the tax year when the property is installed, not just purchased.

8. Good Recordkeeping: It's essential to maintain thorough records of purchases and expenses to streamline the process of claiming the credit during tax filing season.

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By leveraging these home energy credits, taxpayers can not only save on taxes but also contribute to a more energy-efficient and sustainable future for their homes.

References:

Internal Revenue Service. (2024, May 9). Home improvements could help taxpayers qualify for home energy credits (IR-2024-137). https://www.irs.gov/newsroom/home-improvements-could-help-taxpayers-qualify-for-home-energy-credits-ir-2024-137

Your Comprehensive Retirement Planning Checklist: A Roadmap to Financial Security in Your Golden Years.

Planning for retirement is a crucial aspect of financial well-being. Here's a comprehensive retirement planning checklist to help you get started:

1. Set Retirement Goals: Determine your retirement age, desired lifestyle, and financial needs during retirement.

2. Assess Current Financial Situation: Calculate your current assets, liabilities, income, and expenses.

3. Estimate Retirement Expenses: Consider factors such as housing, healthcare, travel, hobbies, and inflation when estimating your retirement expenses.

4. Create a Retirement Budget: Develop a budget that aligns with your retirement goals and expenses.

5. Retirement Strategy: Since taxation will play a big part in your retirement plan: weigh the advantages and disadvantages of “Tax-Deferred”, “Tax-Advantaged”, and “Tax-Free” retirement strategies to suit your needs. Remember that all products promote financial wellness, but each investment product should serve a specific purpose, to meet your specific goal.

6. Diversify Investments: Build a diversified investment portfolio based on your risk tolerance, time horizon, and retirement goals. Consider how certain risk factors in retirement will affect your strategy.

7. Review and Adjust Investment Strategy: Regularly review your investment portfolio and adjust your strategy as needed to stay aligned with your retirement goals and risk tolerance.

8. Consider Social Security Benefits: Understand your Social Security benefits and tax rules to determine the optimal age to start claiming benefits based on your financial situation.

9. Plan for Healthcare Costs: Investigate healthcare options for retirement, including Medicare, supplemental insurance, and long-term care insurance.

10. Create an Estate Plan: Establish a will or trust, a life insurance policy and powers of attorney to ensure your assets are distributed according to your wishes and to minimize estate taxes.

11. Review Insurance Coverage: Assess your insurance needs, including life insurance, health insurance, disability insurance, and long-term care insurance.

12. Pay Off Debts: Aim to pay off high-interest debts before retirement to reduce financial burdens during your retirement years.

13. Consider Part-Time Work or Hobbies: Explore opportunities for part-time work or hobbies that can generate income and keep you mentally and physically active during retirement.

14. Stay Informed: Stay updated on changes in tax laws, retirement regulations, and investment strategies that may impact your retirement planning.

15. Regularly Monitor Progress: Review your retirement plan regularly and make adjustments as needed to stay on track towards your retirement goals.
    

Remember, retirement planning is a lifelong process, and it's never too early or too late to start. By following this checklist and seeking professional guidance when required, you can build a secure financial future for your retirement years.

We urge you to consider the ramifications of risks, tax, and laws currently in place that you may have to face later in retirement. When you're ready to review your options, you can schedule a complimentary consultation with a licensed financial pro at Unifirst Financial & Tax Consultants to help you plan for retirement.