Is the "Big Debt Era" coming for Generation Z? The average credit card debt exceeds 90,000, and the growth rate is far faster than other generations. What is going on?

Is the financial situation of the younger generation deteriorating rapidly? According to research by TransUnion, a Hong Kong credit information service agency, Generation Z in the United States is accumulating credit card debt at an "unprecedented" rate.

As of the end of 2023, the average credit card debt of Generation Z in the United States between the ages of 22 and 24 reached US$ 2,834, which is 26% higher than that of Millennials of the same age group ten years ago. Data from Credit Karma, an American personal finance company, also shows that although Gen Z's overall debt level is still lower than other generations, credit card debt is accumulating faster than other generations.

Why is Gen Z's credit card debt worse than other generations?

Credit Karma analyzed that the reason for this phenomenon is that Generation Z pays more attention to "enjoying life and experiences" than financial planning, such as dining out, shopping and traveling. This consumption habit coupled with less work experience and income , causing credit card debt to rise rapidly. Studies have also shown that compared with previous generations, Generation Z is more accustomed to using credit cards, so they have opened more cards and are more likely to default on payments.

Not just credit cards. As a new generation of digital natives, Generation Z is relatively more familiar with electronic payment tools, such as digital wallets and "Buy Now Pay Later" services. These convenient payment methods make it easier to ignore debt, Or treat debt as normal.

Many credit card companies have also seized on this trend and relaxed application standards, making it easier for young people to obtain credit cards even if their credit scores are not high, further contributing to the debt problem.

Average credit card debt is rising rapidly, and average credit scores are deteriorating

In addition, the "retaliatory consumption wave" after the epidemic has become an important driver of the increase in debt of Generation Z. Credit Karma data shows that Gen Z's average credit card debt increased by 3.2% in the second quarter of 2024 from the first quarter, while Millennials, Gen X and Baby Boomers increased by 2.4%, 2% and 1.6% respectively, Z The growth rate of one generation is much higher than that of other generations.

From March 2022 to February 2024, the proportion of Generation Z users with low credit scores on the Credit Karma platform has also grown from 25% to 33%, an increase of 8 percentage points, and the growth rate is also higher than the 6% increase among Millennials. Declining credit scores may make it more difficult for Generation Z to obtain large loans, having a long-term impact on important life milestones such as getting married, buying a home, and starting a family.

Faced with this phenomenon, experts recommend that young people stay away from high-interest debt, develop a repayment plan, and develop good financial management habits. However, if the problem is not properly resolved, Gen Z's financial crisis will have a profound impact on personal development and socioeconomic stability.

Source: Relevant Magazine, Business Insider, Credit Karma