Retailers banking on a surge in year-end sales are facing an unexpected hurdle: Generation Z shoppers are significantly tightening their purse strings. Contrary to the broader consumer trend, young adults are cutting back on holiday gifts, travel, and dining, posing a challenge for brands that see this demographic as future growth drivers.
Economic Squeeze Forces Younger Shoppers to Rethink
Survey data reveals a stark generational divide in spending intentions. According to a Deloitte survey of over 4,200 U.S. adults, Gen Z shoppers plan to slash their holiday spending by an average of 34%. This reduction is far sharper than in other age groups. In fact, Gen X consumers (aged 45-60) were the only cohort planning to spend more.
The financial pressure is particularly acute for college-educated individuals in their 20s, who typically wield the most spending power among the youth. Housing costs, student loan repayments, and inflated prices for essentials like groceries are eating into their disposable income. For instance, 25-year-old Sonia Iacoboni from Long Island now allocates $2,400 monthly for rent and student loans, forcing her to plan for a "lighter Christmas."
Compounding the problem is a tougher job market. The unemployment rate for recent college graduates averaged 6.8% for the 12 months ending September 2025, the highest level in a decade outside the pandemic spike, as entry-level hiring slows.
How Retailers and Brands Are Responding
This shift is forcing a strategic rethink across the retail industry. While Gen Z currently accounts for only about 8% of U.S. retail spending, consultancy PwC expects that share to grow to roughly 20%, or $2 trillion annually, within five years. Their influence on social media and brand discovery makes them a critical demographic to engage.
Companies are now tailoring strategies to attract budget-conscious young consumers. Electronics giant Best Buy has successfully stocked a broader range of lower-priced products, which drove stronger sales among younger and lower-income shoppers last quarter. Similarly, beauty brand e.l.f. focuses on affordability, with three-quarters of its products priced at $10 or less, including limited-edition items like eyeshadow sticks.
The trend is also boosting the secondhand market. Ajay Gopal, CFO of The RealReal, notes that Gen Z and millennials make up over half of their shoppers, with gifting pre-owned luxury items becoming more acceptable. "A few years ago, the idea would have been unthinkable," he said.
The New Holiday Spirit: Handmade and Experiences
Faced with financial constraints, young adults are getting creative. The sentiment is moving away from expensive material gifts towards handmade items, shared experiences, and savvy deal-hunting.
Britton Rae Copeland, 26, and her friends are opting for a low-cost craft day building paper Christmas houses instead of exchanging trinkets. Mia Chai, a 23-year-old in New York, plans to bake cookies for friends as gifts, a practical choice since she already has the ingredients. "Us saying 'handmade' is managing expectations," Chai remarked, highlighting a new, more pragmatic approach to holiday giving among her peers.
While overall U.S. holiday sales show resilience—Black Friday sales reached $18 billion, up 3% year-on-year—the cautious behavior of Gen Z signals a long-term shift. Retailers must now balance appealing to this influential group's value-seeking mindset while nurturing them as they progress in their careers and, eventually, gain greater spending power.
