More than any other generation, young adults are tightening their year-end spending budgets and shelling out less for gifts, survey data shows. That is a problem for retailers and brands that look to Generation Z—a group that runs from teens to late-20-somethings—to drive shopping trends and boost spending steadily as they earn bigger paychecks.
This year, more are taking the tack of 25-year-old Sonia Iacoboni, who has already warned loved ones that she is spending less this season. The sales-account executive is paying rent for the first time and student loans, which together eat up $2,400 each month. Those extra costs come on top of higher price tags for groceries and other essentials.
“My bank account is certainly not where it once was,” the Long Islander said she told family members in October. “So it will be, you know, a lighter Christmas for me.”
Iacoboni is fairly crafty, she said, so handmade ornaments are an option if there is time. Her younger sister might be a candidate for a dupe version of a high-end coat, handbag or pair of sunglasses. And Iacoboni is hunting for deals to keep her budget in check. “I just know I want it to not be a lot,” she said of her spending.
Gen Z shoppers recently said they expected to cut holiday spending by an average of 34%, sharply more than other age groups, according to a Deloitte survey of over 4,200 U.S. adults. (Gen X consumers, those between 45 and 60 and in their peak earning years, were the only cohort to say they planned to spend more.) A separate, PricewaterhouseCoopers survey found that in addition to spending less on gifts, Gen Zers are pulling back on travel, dining out and clothes shopping.
Overall, American consumers turned out for the informal start of the holiday shopping season. U.S. sales on Black Friday hit $18 billion, up 3% compared with a year earlier, Salesforce data show. But U.S. shoppers purchased 2% fewer items at checkout, and with average prices up 7%, shoppers made 1% fewer online orders. (On Saturday, online U.S. sales in terms of dollars spent rose 5% from the same shopping day last year, according to Salesforce.)
College-educated 20-somethings—the kind of young consumers that typically have the most spending power—are taking a particular hit. Housing and student-loan costs are rising, as are those of restaurant meals and groceries. Meanwhile, the higher unemployment that recent college graduates face compared with older workers is growing as entry-level hiring slows. It rose to an average of 6.8% for the 12 months ended in September—the highest level in a decade outside the pandemic unemployment spike.
For retailers, this generation is in sharp focus. Though it makes up about 8% of U.S. retail spending today, that is expected to grow to about 20% within five years, or roughly $2 trillion annually, said Ali Furman, PwC’s head of U.S. consumer markets. These younger consumers outperform in their social-media influence and tend to explore a wider range of brands.
“Even if it’s not your stated demographic or your desired demographic, you still have to pay attention to this generation because of the influence that they’re having,” she said.
Overall, shoppers are fairly resilient right now, even if they are looking for what they perceive as great value, but low-income and young shoppers are more strained, some retail executives said.
The electronics retailer Best Buy has stocked a broader range of products at lower prices, which helped drive stronger sales among those groups of shoppers in the most recent quarter, Chief Executive Corie Barry said last week. “We’re actually indexing more into lower-income and younger, so to me that reflects the fact that the strategy for us is really positioning us well,” she said.
Mandy Fields, the finance chief of e.l.f. Beauty, has noticed Gen Z’s growing selectiveness. She said the company is trying to appeal to younger consumers with more offerings such as limited-edition eye-shadow sticks and shimmer balms at low prices. Three-quarters of the company’s products are $10 or less, even after a price increase in August to mitigate the effects of tariffs and inflation.
“They don’t have to go out and spend $30 on a lipstick,” Fields said. “That is one thing I think Gen Z loves.”
Britton Rae Copeland, 26, is noticing a reluctance among friends to go big on gifts, and she is right there with them. This year she switched from a 9-to-5 job as a personal assistant to creating social-media content and writing a book, both of which are less financially predictable.
In other years, she and her friends might have exchanged earrings or other trinkets. This season, they are discussing a low-cost activity such as buying inexpensive templates of Christmas paper houses and making a craft day of it.
Copeland said her mother might get a homemade card, and she added that she is browsing secondhand shops and websites in search of other budget gifts.
She isn’t alone in considering preused presents.
“A few years ago, the idea would have been unthinkable,” said Ajay Gopal, chief financial officer at The RealReal, where Gen Z and millennials account for over half of shoppers.
“It was, ‘Oh, my God, you’re going to give me something that somebody’s worn before?’ ” Gopal said. Now, he added, more shoppers are turning to the secondhand market not just to buy luxury names at a discount for themselves but as presents.
Mia Chai, newly living in New York City and working in financial communications, will turn to her oven. The 23-year-old and two friends convened for a routine video call in November and agreed to make gifts for one another to keep a lid on spending.
Chai, an avid baker, will likely make chocolate-chip and snickerdoodle cookies because she already has many of the needed ingredients on hand.
“We all graduated college in May,” she said. “Us saying ‘handmade’ is managing expectations.”
Write to Jennifer Williams at jennifer.williams@wsj.com
