Oil shock weighs on Gen Z as fuel prices rise amid geopolitical tensions

Since the pandemic, the mindset of living for the moment has become more pronounced among many young people, as uncertainty about life has encouraged higher spending on travel, dining, beauty, technology and entertainment. However, the current oil shock is expected to place particular pressure on Gen Z.

For those trying to buy their first home, the market has been difficult for a long time, with conditions described as nearly frozen due to high prices, expensive mortgage rates and limited supply. The labor market has also weakened into what the article calls a “Great Freeze,” where the unemployed struggle to secure jobs and those employed face obstacles in raising incomes.

Spending growth bright spot for Gen Z and Millennials

Despite these headwinds, there is a notable positive development for Gen Z and Millennials: their spending is growing more and contributing more to the economy.

Data cited from Bank of America shows that in the second half of 2025, the spending growth rate of Gen Z and Millennials surpassed that of older generations such as Baby Boomers for the first time in years. The article attributes the improvement to rents cooling and incomes trending higher.

Still, the article warns that the conflict with Iran could interrupt this early recovery. It highlights the risk of disruption in the oil market, pointing to a recent surge in retail gasoline prices as evidence of the pressure.

How higher oil prices can hit discretionary spending

The mechanism described is straightforward: when energy prices rise, consumers tend to cut discretionary spending first—such as travel, dining out and shopping—while continuing to cover essential expenditures including healthcare and housing.

In this framework, the oil shock is expected to hit the labor-intensive service economy hardest before spreading to less sensitive sectors. The article says this dynamic places particular pressure on Gen Z, which also accounts for the highest share of gasoline expenditure relative to total discretionary spending across generations.

It adds that many young people work in entertainment and hospitality, sectors Goldman Sachs predicts will face the deepest cuts. That creates a negative feedback loop: higher gasoline costs alongside reduced job hours increases the risk of lower income.

Bank of America: Gen Z most exposed to gasoline costs

Bank of America is cited as saying Gen Z is the most vulnerable group to higher gasoline prices due to the war-related situation. The article notes that Gen Z is the only generation that has not yet seen gasoline expenditure as a share of total consumption decline versus the pre-pandemic period. By contrast, Millennials have experienced only a smaller decline relative to Gen X and Baby Boomers.

The article further states that Bank of America views Gen Z as being in a phase of newly entering the labor market while also traveling frequently, with incomes remaining relatively low. For Millennials, it says incomes are higher, but they face higher family costs and greater mobility needs.

Potential impact on sectors employing young workers

Beyond energy prices, the article says the Iran conflict could threaten to interrupt the spending recovery of younger generations. It also points to labor-market conditions described by Bank of America as stable but “low-hire, low-fire.”

Bank of America is also monitoring longer-term effects on sectors such as retail and entertainment services, which employ many young workers. The article notes that these industries have faced negative stock-market effects, and suggests that if such pressure persists, it could intensify strain on Gen Z and Millennials’ already fragile spending power.

Data on saving behavior and spending priorities

In the context of rising external shocks, the article describes a critical fork in the spending outlook for younger consumers. It says signals of recovery—improving incomes and cooling housing costs—had raised hopes for a consumption cycle led by Gen Z and Millennials, but that hope may be more fragile as energy volatility and geopolitical instability increase.

According to a Santander Bank report cited in the article, 81% of Gen Z respondents say savings is the top priority. It also references PwC research indicating that Gen Z prioritizes saving but does not cut spending across the board; instead, it reallocates spending, potentially trimming daily expenses to fund meaningful leisure.

What will determine whether the recovery holds

Overall, the article concludes that the trajectory of the labor market and energy prices in the coming period will determine whether the nascent spending recovery for younger generations can be sustained or stalls under new pressures.