Gen Zers are digging themselves into a ditch of debt by tapping into credit at higher levels than their millennial counterparts did in the early stages of adulthood, according to a new study.
New data from credit bureau TransUnion shows the average credit-card balance for 22- to 24-year-olds was $2,834 in the last quarter of 2023. That's 23% more than the average balance held by millennials during the same period in 2013 -- an inflation-adjusted $2,248.
In addition to rising credit card balances, higher prices have contributed to higher balances among Gen Z consumers across other credit products, including auto loans, which are up 14% in 2023 as compared to the inflation-adjusted 2013 average balances.
"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," Jason Laky, executive vice president and head of financial services at TransUnion, said in a statement. "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."
The analysis found that Gen Z borrowers are opening more credit lines and have both higher debt levels and delinquency rates compared to millennials at the same age. About 84% of credit-active Gen Z consumers had at least one credit card in the last quarter of 2023. This is "significantly higher" than the 61% of credit-active millennials who had at least one card 10 years prior, according to TransUnion.
While 75% of surveyed Gen Z consumers said their finances were negatively impacted by the pandemic-induced recession, they've also faced an additional challenge – a rapid rise in inflation.
"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," said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
The increase in credit usage among Gen Z consumers is not necessarily unique to this demographic, as consumers as a whole have been using credit cards more to manage the significant and enduring growth in inflation over the past decade, particularly in recent years, TransUnion noted. Since the end of 2013, the consumer price index has risen 32%, driving many consumers to use their credit cards as a financial backstop to help with increasing costs.
As balances continue to grow for Gen Zers, they are becoming delinquent on credit-card payments at a faster rate than the generation before them. In the 24 months following origination of a new account, Gen Z saw higher consumer-level delinquency rates for auto and credit card, and in particular for personal loans, with nearly 10% more Gen Z borrowers 60 or more days past due compared to millennials 10 years earlier, according to the analysis.
"The performance of the youngest Gen Z borrowers is down across a number of credit products as compared to millennials of the same age 10 years earlier," said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. "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."