The situation: Back in April, roughly 1 in 3 Gen Zers (33%) said they were “financially stressed,” per a Bank of America Institute survey. Among those, 36% report not earning enough to cover basic needs or financial obligations.

Since then, the challenges have only grown worse.

• Younger consumers are struggling to find work. The unemployment rate among 20- to 24-year-olds reached 9.2% in August—the latest available data due to the government shutdown—up from 7.9% the previous month. For 25- to 34-year-olds, the rate ticked up slightly to 4.4% from 4.3%.
• Their wage growth is losing steam. While younger workers typically earn less than their older colleagues, they often see faster wage gains. However, wage growth for 25- to 29-year-olds has slowed more sharply than for their mid-career peers. It is now just 4 percentage points higher than that of workers in their 40s—down from the 6 to 7 percentage-point gap before the pandemic, which largely persisted through 2022, according to the JPMorgan Chase Institute.
• At the same time, many are struggling with student loan payments. This situation may worsen in wake of the Department of Education’s efforts to restrict access to income-driven repayment plans. A rule announced last week would curtail the Public Service Loan Forgiveness program and restrict the types of workers and fields eligible for the benefit.

The challenging macro environment is causing younger consumers to lose their appetite for some fast-casual dining and forcing retailers and restaurants targeting this demographic to rethink how they drive spending.

Zooming in: Both Chipotle and Shake Shack sounded the alarm on slowing spending among younger consumers on their recent earnings calls.

• Chipotle said that 25- to 34-year-olds, who account for about a quarter of its sales, have “pulled back meaningfully.” Still, the company’s internal and third-party data show it’s continuing to gain market share, suggesting these consumers aren’t trading down to cheaper competitors but shifting their spending toward groceries and meals at home to save money.
• Shake Shack CEO Rob Lynch said youth unemployment is clearly affecting sales at his company and across the broader restaurant industry.

Both chains are leaning on loyalty and promotions to reenergize their core fans. Chipotle reengaged some younger consumers with its “Summer of Extras” campaign, which offered loyalty members extra benefits, points, and free menu items. Shake Shack, meanwhile, has recently found success using in-app deals, including $1 drinks, $3 fries, and $5 shakes, to drive consumers to spend.

Retailers catering to the same demographic are also experimenting with new ways to spur spending. Urban Outfitters, for instance, is expanding a new store format—already operating in Houston and Glendale, California—to eight additional locations. The larger-format stores spotlight the brand’s lower-cost private labels—such as BDG denim, Out From Under (OFU), and Standard Cloth—and incorporate local shopping preferences into their assortments.

Our take: Younger consumers have less income and far less accumulated wealth than older cohorts, so it’s no surprise they’re pulling back as the labor market softens and macro pressures mount.

That pullback could weigh on retailers this holiday season. Gen Zers expect to cut their holiday budgets by 22.5% YoY, per PwC. While that may overstate the impact—last year, they planned to increase spending 37.4% but actually spent only 6% more, per PwC card data—the trend is clearly moving in the wrong direction.

In this challenging environment, retailers and restaurants will need to double down on value and use targeted promotions to pursue younger shoppers. That could mean highly tailored loyalty offers or broader discounts tied to key shopping moments and holidays.