Skuldsatt gen Z mer finansiellt stressade än millennials

Inflation drives many to credit cards to cover costs, leaving them with bigger balances

Young Americans are starting out with more credit-card debt than generations before them. That financial burden can have long-lasting effects.

The rising debt load largely reflects a surge in prices for food and shelter at the start of their careers, coupled with a larger percentage of Gen Z who graduated with student loans . The average credit-card balance for 22- to 24-year-olds was $2,834 in the last quarter of 2023, compared with an average inflation-adjusted balance of $2,248 in the same period in 2013, according to new data from credit-reporting agency TransUnion .

Younger people with higher debt are more delinquent on credit-card payments and need to rely on family for help if they lose their job, say economists and financial advisers. They also often delay life milestones, including homeownership and marriage, say the economists.

“This is a generation that is feeling financial stress in a more acute way than millennials did a decade ago,” said Charlie Wise, head of global research at TransUnion.

Lindsay Quackenbush was recently working for a publishing company that paid her $60,000 a year. The money was just enough for the 26-year-old to cover her portion of the rent for the New York City basement apartment where she and her boyfriend live. Then she was laid off.

She is carrying a balance of about $1,700 across three credit cards and is for the first time not able to pay off her credit cards in full. She is making the minimum payment for now while she hunts for a new job.

As for thinking about milestones such as marriage and children, she and her friends have discussed putting anything like that off until they are in a more financially stable position . “Who knows when that will be?” she said.

The median annual wage for recent college graduates was $60,000 in 2023, little changed from $58,858 in 2020, according to the Federal Reserve of New York.

At the same time, rent, which typically takes up at least one-third of the average worker’s monthly paycheck, has soared . The median rent in the U.S. was $1,987 as of January, a nearly 22% increase over the past four years, according to research from Rent, an online rental marketplace. About one-third of households rent and tenants tend to be either young professionals or lower-income families, said Scott Fulford, a senior economist at the Consumer Financial Protection Bureau.

“Young people always have low wealth on average compared to everybody else,” Fulford said. “The last several years have been particularly complicated because rental inflation has been so high.”

When Adriana Cubillo, 26, moved into her one-bedroom apartment in Salt Lake City a little over a year ago, the rent was $1,000. Since then, it has gone up by $200. That puts a bigger dent in the nearly $30,000 annual salary she makes as a customer-service representative for an insurance company.

She pays for groceries, gas and dog food with her three credit cards and currently holds a balance of $1,500. She pays about $50 a month toward the cards to satisfy the minimum payments.

“When I was younger, I was so ready to be an adult and grow up and live on my own but the economy has made it difficult,” Cubillo said.

In 2021, credit companies loosened the qualifications for who could get credit cards and more people opened new accounts. Gen Z members opened new credit-card lines at a faster rate than other generations during the pandemic. Nearly 5% of consumers 27 or younger had opened at least one new credit-card account in March 2020, according to data from VantageScore. By March of this year, that figure had dropped to 3%.

That trend has resulted in a greater use of credit cards overall: Of those with an open loan or credit line, Gen Z members were more likely to have at least one credit card compared with millennials a decade ago, says TransUnion’s report.

The shift might also have been fueled by members of Gen Z who grew up as authorized users on their parents’ credit cards in the hope that, by the time they turn 18, they would be able to borrow money on their own more easily, Wise said.

Gen Z members also benefited from rising credit scores during the pandemic. The influx of cash from stimulus checks and fewer opportunities to spend money made it easier for consumers to pay down their debt and stay on top of their bills.

As interest rates have climbed over the past two years, those credit scores have taken a hit. The drop was most drastic for millennials with credit scores between 660 and 719, whose scores fell by 26 points. Gen Z wasn’t far behind. The average credit-score change for Gen Z with credit scores above 720 fell 24 points during that time period, according to Credit Karma.

Emma Goodness, 21, has been an authorized user on her mom’s American Express card since she was 16. As soon as she graduated from high school, Goodness had a 745 credit score and qualified for a credit card with a $2,500 limit.

She keeps most of the money she gets from her on-campus job at Tulane University in New Orleans and the money her parents send her in a high-yield savings account. She has her credit card set to automatically deduct from her checking account.

Last month, she forgot to transfer money from her savings and missed a credit-card payment. She owed less than $200, she said. This was the second time in a year that she had slipped up on a payment.

“It’s a slight hit to your credit score, of course, but I’m much more mindful of it now,” she said.