Gen Z maintains discretionary spending despite inflation
As inflation on essentials like food continues to spiral, six-in-10 UK consumers are cutting back on non-essential purchases. To adapt to this, many firms may now pivot their attentions to Gen Z, the majority of whom intend to keep discretionary spending at the same level as before.
While the UK’s inflation rate fell by a whole 0.3% in March 2023 (to 10.1%, which remains higher than most of the last four decades), food prices continued to soar. The price of food and non-alcoholic drinks accelerated by 19.1% in the year to March, fuelled by record growth in the price of bread and cereals. The increases add to pressure on the poorest households in Britain in particular, which spend a larger share of their income on basic essentials than richer ones.
As a result, the vast majority of UK households are still committed to downsizing their spending. According to research from Wunderkind, 30% of UK households are cutting back on essential spending – including items like food – while a further 64% are cutting non-essential, or discretionary spending.
Even as some experts point to the ‘cautious optimism’ inspired by inflation falling – albeit in a way that neglects the lived experience of most British consumers – few are finding the opportunity to ease off spending cuts. While 78% said the extent to which they were cutting non-essential spending now was ‘less’ than before, this may be because they already spent the last year cutting in that area. Suggesting this could be the case, 59% of UK respondents said the rate at which they were cutting essential spending was either holding steady, or gaining pace.
As retailers struggle to avoid being included in the latest wave of UK insolvency statistics, this presents a major issue. Staying relevant to a population which is unable to spend in the way it used to is leaving stores – many of whom are having to pay back pandemic era loans – exposed financially.
To that end, Wunderkind’s study suggest that companies might consider pivoting their marketing from targeting older generations, to Gen Z shoppers. According to the researchers, the generation seems “unphased” by the economic picture, and has the least extensive plans for spending cuts of any age group.
New marketing strategy
Wunderkind suggests that Gen Z registers the highest levels of consumer confidence – with just 22% in the US and UK stating a need to reduce discretionary spending. The cohort is finding that its buying power is increasing, with the youngest generation of workers finding it now has a combined disposable income of $360 billion in the US alone. As a result, the researchers assert that “knowing that Gen Z isn’t slowing down on spending” could help inform marketing strategies.
How effective this is remains to be seen, though. While Gen Z is cutting the least of its spending, it had the lowest annual expenditure to begin with, with World Economic Forum research finding Gen Z an average of $41,000 in 2021, less than even the $44,000 of the dwindling silent generation. At the same time, as the generation ages, and takes on commitments that often come with that – including mortgages and raising children – this apparent ‘unphased’ attitude to the economic outlook may change rapidly.
