Gen Z is going to have a hard time getting rich

• Gen Z will earn a third less on stock and bond investments than past generations, Credit Suisse found.
• They can expect average annualized returns of just 2%, according to the bank's investment returns yearbook.
• Another obstacle for Gen Z: they've been the most unemployed during the pandemic.
• See more stories on Insider's business page.

Gen Z is walking a rocky road to getting rich.

They're set to earn less than previous generations on stocks and bonds, according to Credit Suisse's global investment returns yearbook.

In fact, the generation can expect average annual real returns of just 2% on their investment portfolios - a third less than the 5%-plus real returns that millennials, Gen X, and baby boomers have seen. Credit Suisse's analysis took in average investment returns since 1900 and forecasted them going forward for Gen Z.

The yearbook acknowledges that marked deflation could increase bond returns, The Economist reported, but it said inflation is more of a concern. What the report calls a "low-return world" is yet another another financial obstacle for the generation, who may be on track to repeat millennials' money problems.

A December Bank of America Research report called "OK Zoomer" found that the pandemic will impact Gen Z's financial and professional future in the same way that the Great Recession did for millennials.

"Like the financial crisis in 2008 to 2009 for millennials, Covid will challenge and impede Gen Z's career and earning potential," the report reads, adding that a significant portion of Gen Z is entering adulthood in the midst of a recession, just as a cohort of millennials did. "Like a decade ago, the economic cost of this recession is likely to hit the youngest and least experienced generation the most."

Gen Z was hit hardest in the workforce

Gen Z been been impacted the most in the workforce, facing the highest unemployment rates.

They entered a job market crippled by a 14.7% unemployment rate in May - greater than the 10% unemployment rate the Great Recession saw at its 2009 peak. Those ages 20 to 24 had an unemployment rate of nearly 27% when the unemployment peaked last April according to data from the St. Louis Fed, more than any other generation.

Recessions typically hit younger workers hardest in the short-term, but can reap long-term consequences.

"The way a recession can really hurt people just starting out can have lasting effects," Heidi Shierholz, a senior economist and the director of policy at the Economic Policy Institute, previously told Insider. "There's a lot of evidence that the first postgrad job you get sets the stage in some important way for later."

Recession graduates typically see stagnated wages that can last up to 15 years, Stanford research shows. That was the case for the oldest millennials graduating into the Great Recession, who in 2016 saw wealth levels 34% lower than that of previous generations at the same age, per the St. Louis Fed.

A follow-up study showed that by 2019, this cohort had narrowed that wealth deficit down to 11%. Such financial catch-up could be an optimistic sign for Gen Z in terms of regaining any ground lost building wealth during the pandemic.

However, millennials have had a 5%-plus annualized investment return on their side. With a projected 2% annual return for Gen Z, building wealth may be even harder to do.

There's more to building wealth

Of course, stocks and bonds are just two asset classes. There are other ways Gen Z can build wealth, such as investing in real estate or by becoming successful entrepreneurs. Many Gen Zers have already embarked on an entrepreneurial path as early as their teen years, which could go a long way in wealth creation.

But the pandemic has caused a housing frenzy that led to depleted inventory and inflated housing prices, making it more difficult to buy real estate - and build wealth through it. And while more prospective new businesses were formed in 2020 than ever before, almost a third of existing small businesses were wiped out by the pandemic. Altogether, the pandemic could ultimately cause Gen Z to potentially lose $10 trillion in earnings.

Within the next decade, Gen Z's income will rise to such a point that they'll effectively take over the economy, but their wealth could well be far behind previous generations by the time they get there.