A recent study conducted by credit reporting agency TransUnion shed light on the financial challenges faced by individuals in their early twenties, particularly those belonging to Generation Z. The study revealed that compared to Millennials at a similar age, Gen Zers are encountering lower earnings, higher debt burdens, and increased delinquency rates.
The research focused on the credit behaviors of individuals aged 22 to 24, categorizing them as part of Generation Z, defined as those born between 1995 and 2012, while Millennials encompass those born between 1980 and 1994. This examination aimed to understand how economic circumstances have influenced the financial habits of different generations.
Both Millennials and Gen Zers have confronted significant economic adversities early in their professional lives. While Millennials grappled with the aftermath of the global financial crisis, Gen Zers faced the economic repercussions of the Covid-19 pandemic. However, the current cohort of young adults faces an additional challenge in the form of persistent inflation, leading to elevated prices across various essentials such as fuel and groceries. Moreover, soaring interest rates have contributed to increased borrowing costs for auto loans, student loans, and mortgages.
The broader landscape of the US credit economy reflects higher debt levels and delinquencies across various credit products. According to a separate TransUnion report, the total credit card balance for Americans surpassed $1 trillion for the first time in 2023. Given that Gen Zers are at the initial stages of their credit journeys, establishing healthy financial habits early on becomes imperative for their long-term financial well-being.
To delve deeper into the financial situation of Gen Zers and explore potential solutions, Before the Bell engaged in a discussion with Charlie Wise, the head of global research and consulting at TransUnion. Wise highlighted the factors driving Gen Z's increased reliance on credit, such as rising living costs, particularly in areas like rent, food, and transportation.
In light of these challenges, Wise offered practical advice for Gen Zers navigating financial difficulties. He emphasized the importance of understanding one's financial capacity and avoiding the trap of accumulating debt by solely making minimum credit card payments. Wise suggested exploring options like refinancing high-interest credit card debt with more affordable alternatives such as personal loans, provided that individuals refrain from falling back into debt after consolidation.
Despite concerns regarding Gen Z's financial health, Wise maintained a cautious outlook, characterizing the situation as one that warrants monitoring rather than immediate alarm. While acknowledging higher debt levels and delinquencies among Gen Z consumers, he expressed optimism about their potential for career advancement and increased earnings over time. However, Wise underscored the importance of prudent financial management to ensure borrowing and spending remain within means.
In summary, the study underscores the financial challenges faced by Generation Z, necessitating proactive measures to cultivate healthy financial habits and navigate economic uncertainties effectively.