Gen Z Faces Financial Stress As Hourly Wages Lose Ground

Half of Generation Z workers earn hourly wages, according to PYMNTS Intelligence’s “Income Instability Is Redefining the Paycheck-to-Paycheck Economy,” the November edition of the “New Reality Check: The Paycheck-to-Paycheck Report.”

Born after 1996 and now numbering around 71 million individuals, Gen Z represents about one-fifth of the total population of the United States. The report found that 3 in 4 Gen Z employees work non-salaried roles, with 51%, or roughly 36 million individuals, paid hourly. That has implications for their ability to make ends meet.

Hourly wage workers are more likely to have unstable income from month to month due to unpredictable work shifts that can change from one week to the next and shifts in demand for goods or services that reduce a business’s workforce needs. People earning hourly wages get their paychecks based on the number of hours they work.

By contrast, a salaried position involves fixed, regular payments, regardless of the number of hours worked. That’s why even if hourly workers earn roughly as much as someone in a salaried position, they’re more exposed to income volatility and instability, and they’re more likely to find it tougher to plan their financial budgets and build a savings cushion.

Drawing on a survey of 2,117 U.S. adult consumers, the report delved into how consumers’ primary sources of income shape their financial lifestyles. The oldest Gen Zers, now age 28, rely on hourly wages more than any other generational cohort. Across the labor force, 43% of workers depend on hourly pay, including 37% of millennials, 45% of Generation X and 48% of baby boomers. Hourly wage workers are more likely to live in rural areas (59%) than in suburban ones (47%) and urban ones (34%).

Stuck in 2009

Employees are paid by the hour when they’re classified as “non-exempt” under federal labor laws, meaning they earn less than $684 per week (equivalent to $35,568 per year).

They’re guaranteed a minimum of $7.25 an hour, an amount unchanged since 2009, and overtime pay for more than 40 hours, at 50% more.

They can earn more if they work in a state with a higher rate. California, for example, mandates $16.50 an hour. (Workers don’t have to live in a higher-wage state; they must only perform work for a company operating there.)

An employer can pay a tipped worker, such as a restaurant server, $2.13 an hour if that amount plus the tips received total at least the federal minimum wage. The Department of Labor’s proposal to increase those thresholds was struck down by a Texas district court in 2024, leaving millions of workers bound to levels that are 16 years old.

Being paid an hourly wage is a driver of whether a worker lives paycheck to paycheck. Two in three U.S. consumers do, and 51% living that way with difficulties paying their monthly bills earn their income primarily through hourly wages. Another 22% earn income through other non-salaried sources. Fewer than 1 in 4 of these financially struggling individuals lives off a fixed salary.

Not all consumers living paycheck to paycheck do so out of financial necessity. Many have made deliberate spending choices that affect their financial lifestyle. Yet among non-salaried workers, paycheck-to-paycheck living is more likely to be the result of having no choice but to live that way. These workers simply do not earn enough to easily afford necessities, with some money left over for nice-to-have items and services. Approximately 76% consumers who live paycheck to paycheck by necessity earn their income outside of salaried positions, versus 57% of those living paycheck to paycheck by choice.

These findings, and their disproportionate relevance to Gen Z, could have implications for the U.S. economy. The cost of living is becoming less affordable, consumer confidence is falling, and hourly workers are seeing their wages decline.

For all employees on private nonfarm payrolls, average hourly earnings in September were roughly flat at $36.67, according to the most recent Bureau of Labor Statistics data. But averages can mask outliers.

Take what PYMNTS Intelligence calls the U.S. Labor Economy, comprising roughly 60 million workers in production, logistics, retail, food service, healthcare support and other in-person roles who earn less than $25 an hour. They drive about 15% of total consumer spending. So, when their wages slip, overall consumer spending takes a hit. In October, the average hourly wage for these workers dipped to $19.39 from $19.55, a 0.81% month-on-month decline, according to PYMNTS Intelligence calculations based on data from WorkWhile. That drop, in turn, implies a $14 billion annualized pullback in consumer spending.

A Lion That Could Roar

Gen Zers aren’t financially reckless. They’re saving more and starting earlier, and they seek out low-cost options for retail and leisure. With their existing income instability and with layoffs on the rise, they may well pull back their spending as their financial circumstances deteriorate. More than other generations, they express discomfort managing financial situations.

Here’s why that should matter. Young consumers are drivers of spending, and their purchasing power is growing. American Express’ third-quarter earnings results showed that Gen Z and millennials’ total card spending is now equal to Gen X’s, representing a 36% share of total consumer spending. Moreover, Gen Z’s purchasing power is projected to reach $12 trillion by 2030 (up from $7 trillion this year). These consumers’ financial lifestyles and consequent spending habits are a concern for the entire U.S. economy.

The trend is already beginning to take shape. PYMNTS Intelligence research revealed a $2.6 billion annualized pullback in spending among Gen Z in October, a smaller reduction than millennials but greater than Gen X or baby boomers.

This belt-tightening comes as half of all Gen Zers report difficulties affording their daily living expenses, and 95% experience at least some challenges related to the costs of living and financial management. Grocery costs, rent and medical bills are common sources of stress for these young consumers.

All of that makes Gen Z’s reliance on hourly and other non-salaried income sources an emerging economic pressure point. If the availability of salaried roles continues to shrink, and if wages do not improve such that consumers can achieve financial stability in hourly roles, Gen Z may continue to rein in their spending, creating ripple effects for all U.S. consumers and businesses.

For deeper insights into how consumers’ income sources are related to their financial lifestyles, check out the full report, “Income Instability Is Redefining the Paycheck-to-Paycheck Economy.” In addition to exploring these links, the study also dives into how people’s financial circumstances have changed and into how Americans across a range of demographics are earning their incomes.