Gen Z Is Earning Less And In More Debt Than Millennials Were At Their Age
Gen Z is having financial troubles. Many factors are at play, but inflation, low wages, and the COVID-19 pandemic all played a part. Recent research conducted by TransUnion, a credit reporting agency, revealed that individuals in their early twenties are experiencing lower incomes, higher debt, and increased delinquency rates compared to Millennials when they were the same age. This is a real problem, and the consequences for Gen Z’s mental health could be really bad.
Gen Z Credit Behavior
The research is about the credit behavior of Generation Z individuals aged 22 to 24. Millennials within the same age group were surveyed about their credit habits in 2013. Generation Z comprises individuals born between 1995 and 2012, while Millennials are defined as those born between 1980 and 1994.
Economic Challenges For Both Generations
Both Generation Z and Millennials have faced economic challenges early in their professional lives. Generation Z encountered the COVID-19 pandemic, whereas Millennials grappled with the global financial crisis.
Covid Hit Hard
The report said, “75% of surveyed Gen Z consumers said they had their finances negatively impacted by the pandemic-induced recession, while 60% of Millennials said the Global Financial Crisis had negatively impacted them.”
Covid Affected How Gen Z Uses Credit
Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, said, “Gen Z consumers have seen their finances significantly impacted by the pandemic and its aftermath, even more so than the challenges faced by Millennials as a result of the Global Financial Crisis. This likely has played a key role in the shifting priorities of Gen Z consumers, both in the types of credit they are seeking, and the way they are using that credit once they gain access to it.”
Inflation
Today’s individuals in their early twenties face an additional obstacle: persistent inflation, which has led to increased prices across various sectors. Moreover, interest rates, currently at a 23-year peak, have escalated borrowing costs for auto loans, student loans, and mortgages.
High Prices Impacting Credit Use
Increased prices have led to elevated balances among Generation Z consumers across various credit products, such as auto loans, which saw a 14% rise in 2023 compared to the inflation-adjusted average balances of 2013.
Not A Surprise?
“It’s no surprise that in this economic climate, one in which the cost of living is significantly higher relative to a decade ago, younger consumers are increasingly turning to credit products to bridge their financial needs. This is a demographic that is younger and newer to the workforce and accordingly, is likely commanding a lower salary at an earlier point in their career. As long as inflation remains elevated and the cost of goods remains so as well, balances across products such as credit cards, personal loans, and auto are likely to continue to grow,” said Jason Laky, executive vice president and head of financial services at TransUnion.
Past Due Payments
Almost 10% more Generation Z borrowers are 60 days or more past due on payments compared to Millennials a decade prior. This is a rather worrying statistic.
Americans Are In Debt
This challenge isn’t exclusive solely to young consumers in the early stages of their careers. The entire credit economy in the United States has witnessed elevated levels of debt and delinquencies across the majority of credit products. According to a report by TransUnion, Americans’ collective credit card balance surpassed $1 trillion for the first time in 2023.
Gen Z Needs To Be Cautious
“While inflation and interest rates remain elevated, Gen Z consumers need to be particularly cautious in how they use and manage their available credit, given the relative youth of their credit profiles and lack of a robust historical track record. Establishing a foundation of strong credit performance will be important as this emerging segment looks to expand their credit wallets to meet their future needs,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion.
Addressing Financial Challenges
Given the economic hurdles faced by Generation Z, proactive financial management is crucial. Financial literacy programs tailored to these age groups can empower individuals with information about budgeting, saving, and responsible credit usage.
Encouraging Responsible Credit Practices
Encouraging responsible credit practices among Generation Z is needed to mitigate the impact of inflation, low wages, and rising debt levels. Encouraging habits such as regular monitoring of credit reports, timely payments, and maintaining low credit utilization ratios can contribute to building a strong credit profile.
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