Gen Z needs a 'reality check,' says Bank of America: Is the 'little treat economy' blowing up their future one coffee and cosmetic at a time?

Now, a new Bank of America Institute study, “The Gen Z reality check,” lends some credence to the latter. It found Gen Z has the lowest generational savings-to-spending ratio largely due to splurging on “beauty, jewelry, coffee and travel” in what’s dubbed the “little treat economy.”

“Many younger consumers still want financial stability, but they’re also unwilling to put life completely on hold while waiting for perfect conditions,” Taylor Bowley, a Bank of America Institute economist and one of the study’s contributors, told Moneywise.

She also said that traditional milestones such as homeownership “may feel further away” and, as such, Gen Z invests “in experiences and personal well-being today while searching for new ways to fund tomorrow’s goals.” And that’s a key point in understanding why they spend like they do.

“Gen Z isn’t playing the same game as older generations,” financial therapist Lindsay Bryan-Podvin told Moneywise. “In the 60s and 70s, you could argue that skipping dining out would let you save up for a home. That world no longer exists.”

How Gen Z balances today’s small joys with an uncertain future

When it comes to Gen Z’s relationship with spending and saving, one theory revolves around the psychological concept of “uncertainty tolerance” — or, the “ability to cope with an unpredictable future.” After all, when the long-term financial goals seem bleak, why not spend on something short term to make you happy today?

The Bank of America Institute study found that Gen Z discretionary spending growth has ticked up since March 2025, “suggesting affordability pressures have not led this generation to broadly pull back on nice-to-have purchases” like those in the “little treat economy.”

At the same time, they noted the unemployment rate for young workers is higher than the U.S. average and that, more than any other cohort, Gen Z increasingly takes on extra gig work to maintain “spending priorities and pursue longer-term goals.”

“With the cost of living increasing, stagnant wages, and economic uncertainty, it makes sense that Gen Z would do the math and see that even if they cut the two-times-a-week latte habit, they are still nowhere near being able to save up for a home,” Bryan-Podvin said.

She added her belief that Gen Z understands that financial wellness isn’t just about boosting a bank account while denying yourself joyful experiences.

“There’s something very mindfulness-coded,” she explained, “about saying, ‘what is my money for? How am I using it to support my future self, but also my present self?’”

And while it’s true that many Gen Zers see the American dream as a “pipe dream,” they aren’t all selling out their futures for a latte today. Previous Bank of America research found that many Gen Zers practice “loud budgeting,” meaning they outwardly admit when they can’t afford to join social outings, while also searching out financially responsible romantic partners.

Others have found that Gen Z takes pride in finding discount deals when spending, including 49% who love using coupons and 63% who find it irresponsible to pay full price.

The new Bank of America Institute study also noted that the cohort began retirement saving earlier than their elders, while a July Urban Institute report says despite “coming of age at a time when it seems the old rules of financial success no longer apply,” 75% of Gen Zers save money in checking accounts, 42% in retirement accounts and 25% in high-yield savings accounts.

Thea Garon, the Urban Institute’s director of financial well-being and co-author of the report, told Moneywise that Gen Zers are not purely “nihilistic or savvy” when it comes to money. Instead, she said, “today’s young adults are navigating a complex financial landscape with caution, creativity, and ambition.”

It’s also worth noting that Gen Z may be unfairly maligned for their love of “little treats.” Research shows that “nearly half of Americans seek out small indulgences regularly,” while “62% consider them part of their self-care routine.”