While the market impact of Millennials is undoubtedly powerful, there is a new generation on the scene deserving of their own recognition: the pivotal Gen Z. These young consumers are on track to become the largest generation in just a few years; specifically, they are believed to make up 40 percent of all consumers by 2020.

And as told by a plethora of sources across the internet, they represent $44 billion in direct buying power – or do they?

Unfortunately, in nearly all cases of its usage this number is presented without either explanation or support from the references cited. As an organization that prides itself on our interest in consumer generations, we felt that it was necessary to dig deeper. After all, brands cannot properly prioritize this up-and-coming youth group if they are unable to determine their true power.

To calculate this estimate, Barkley’s VP Consumer Intelligence Director, Joe Cardador, PhD, used the following guiding principles:

• Start with numbers based on publically available data from reputable government resources (such as U.S. Census Bureau data).
• Keep new calculations simple and understandable.
• State any assumptions made clearly within the new calculations.

As such, we believe that the actual figure of direct spending by Gen Z is between $29 billion and $143 billion.

How did we get there?

Income Based on Allowance of 7- to 17-year-olds

The “original” direct spending number of $44 billion is from a Mintel study that used population estimates and average self-reported allowance to calculate the spending potential of kids and teens. The use of this statistic is misrepresented on its own because Mintel was looking at kids and teens ages 6 to 17, which covers most, but not all, of our Gen Z age range of 7 to 21. Additionally, the $44 billion is total estimated earnings for kids and teens in the U.S. using 2012 data and an average allowance at that time of $16.90.

What this means is that it represents the total potential spend of these kids and teens but, as this group is unlikely to spend 100 percent of its earnings, actual spend is considerably less. In fact, the same Mintel study also asked kids and teens themselves how much they spend each week and found they spent only 66 percent of their earnings on average. This would make the estimate of actual direct spending of Gen Z at $29 billion. While it is reported within the Mintel report, it is not often cited – and still doesn’t include the impact of spending from Gen Zers ages 18 to 21.

Income Including 18- to 21-year-olds

This number can be expanded when considering members of Gen Z between the ages of 18 and 21 and assuming they have similar allowances to the teens in the Mintel study. Mintel reported the average for kids ages 6 to 11 as $8.53 and those ages 12 to 17 as $25.26. By using updated 2016 population estimates from the U.S. Census Bureau and adding 18- to 21-year-olds to this figure (assuming they have the higher allowance), this increases earnings to $64.5 billion. With the assumption that the same average spending rate of 64 percent (ages 7 to 11) and 67 percent (ages 12 to 21) holds, the accurate estimate of actual spending by Gen Z becomes approximately $43 billion.

While again a useful statistic, it doesn’t consider the possibility that Gen Z members between the ages of 16 and 21 are more likely than their counterparts to be earning additional income outside of allowances. As we know this generation is extremely entrepreneurial, we can be almost positive they are earning income from one part-time job…. or two or three!

Earned Income from 16- to 21-year-olds

To estimate the impact of earned income through employment outside of the home, we looked at median weekly earnings estimates from the Bureau of Labor Statistics (BLS) for Gen Z members ages 16 to 19 and 20 to 24. BLS listed these figures as $405 and $514, respectively. By dividing the number of those ages 16 to 24 reporting earned income by the total population of Gen Z based on Census Bureau estimates, we obtain an employment rate of 26 percent. When we multiply the number of Gen Z members ages 16 to 21 by 26 percent and their respective weekly earnings by 52, we get the updated earnings estimate of close to $153 billion and overall spending of nearly $100 billion. Combined with allowance estimates, this yields $143 billion in total Gen Z spending. This is without considering other sources of income that isn’t reported to the federal government, such as yardwork or babysitting, which would only increase Gen Z’s overall direct earning and spending.

There’s no denying that Gen Z challenges the methods and strategy of the market at large. They are divergent youths that demand new tactics. As such, their spending varies from other consumer groups and requires diligent attention.

Stay tuned for more on Gen Z’s indirect spending influence in our upcoming white paper, publishing January 2018!