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Debt Swallows Gen Z as Credit Card Balances Soar

Debt Swallows Gen Z as Credit Card Balances Soar

May 8, 2024

Debt Swallows Gen Z as Credit Card Balances Soar

Recent reports reveal that inflation is having a considerable impact on the financial habits of young Americans, particularly those belonging to Generation Z. With the cost of living on the rise, many are turning to credit cards to manage expenses, resulting in increased average balances and potential long-term financial strain.

According to credit-reporting agency TransUnion, the average credit-card balance for 22- to 24-year-olds reached $2,834 in the last quarter of 2023, a notable increase from $2,248 in the same period in 2013, when adjusted for inflation. This growing debt is attributed to surges in essential costs such as food and shelter, as well as the burden of student loans that many young adults carry.

Charlie Wise, head of global research at TransUnion, stated, “This is a generation that is feeling financial stress in a more acute way than millennials did a decade ago.” The consequences for these young individuals are not just financial; they also extend to personal milestones. Many, like 26-year-old Lindsay Quackenbush, who was laid off from her publishing job, find themselves postponing life events such as marriage and homeownership.

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The economic landscape for young professionals is particularly challenging. Despite a median annual wage of $60,000 for recent college graduates in 2023, rental prices have surged, with the median rent reaching $1,987 as of January. This represents a nearly 22% increase over the past four years. Scott Fulford, a senior economist at the Consumer Financial Protection Bureau, notes that rental inflation has been exceptionally high, affecting young professionals and lower-income families the most.

Credit card companies have adjusted their lending practices, making it easier for consumers, including Gen Z members, to open new accounts. During the pandemic, Gen Z opened credit-card lines at a faster rate than other generations. However, as interest rates have risen, credit scores have been negatively affected. For example, millennials with credit scores between 660 and 719 saw a decrease of 26 points, with Gen Z following closely behind.

Median minimum monthly debt payments for U.S. consumers rose by 32% from 2020 to 2023, outpacing the 18% inflation rate. This impact is felt most acutely by young Americans aged 18 to 29, who experienced a staggering 74% increase in monthly payments.

If these financial challenges continue, there could be broader implications for the U.S. economy. Bank of America’s Better Money Habits survey indicates that the financial strain is leading to significant changes in spending habits and could potentially delay family planning, contributing to the decline in U.S. fertility rates.

With inflation driving up living costs and wages struggling to keep pace, many young adults are increasingly relying on credit cards to cover their expenses, leading to higher debt levels and delayed personal milestones. The long-term effects of this trend on both individuals and the economy are yet to be fully realized.

Wall Street Journal Article


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