While both Generation Z and millennials are maturing during difficult financial times, TransUnion’s study Solving for Z shows Generation Z has it harder. Solving for Z compares the credit usage of 22-24-year-olds today to how folks the same age fared a decade ago.
Generation Z is an emerging force. They are already half the size of millennials. In six years, they will be 80 million strong.
TransUnion’s vice president and head of research, Michele Raneri, said Generation Z is opening more credit lines and has higher debt and delinquency rates compared to millennials at the same age. Due to higher inflation, they depend more on credit cards and auto loans. At 84%, more of Generation Z uses credit cards than the 61% of millennials a decade ago. Consequently, nearly 36% of Generation Z said credit cards are their most useful product, compared to 29% of millennials.
“Gen Z consumers have seen their finances significantly impacted by the pandemic and its aftermath, even more so than the challenges faced by millennials as a result of the Global Financial Crisis,” Raneri said. “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.”
Generation Z must contend with 32% cumulative inflation over the past decade. Their average annual income of $45,000 might seem more than the $39,000 of millennials, but adjust millennials’ income to 2024 dollars, and it becomes $52,000. While 60% of millennials felt they were affected by the crash, 75% of Generation Z said they were impacted by the pandemic.
“And so already in just that one metric, you see that the relative income for Generation Z isn’t really keeping up with inflation if you compare them to their counterparts,” Raneri said.
They have it tougher than you think
That explains the higher credit card delinquency rates. Debt-to-income and balance rates are also higher than millennials saw.
“When we look at the credit data, both of income disparity and that the balances even adjusted for inflation are higher,” Raneri began. “If they’re feeling that pressure, that maybe they’re not as well off, as millennials were, there are some indications that they’re not.”
At first glance, Generation Z has higher credit scores, but that is also deceiving. A decade ago, the average millennial credit score of 634 was 31 points below the average of 665. Generation Z is 48 points lower than average.
“While they are doing better from an empirical point of view, from a relative point of view, they’re a little behind in their scores,” Raneri said. “Also, they haven’t kept up with the growth that we’ve seen in scores.”
What Generation Z is doing differently than millennials
Generation Z wants credit, but most believe they don’t have access to the products they need. They are often turned down. Raneri said that leaves them with the sense that they are not as good with credit.
Evolving family spending habits have also changed the nature of credit card use. In the past, parents would provide kids with spending cash. Today, more are giving an authorized user card on their credit card. It is flexible and convenient and lets parents track spending.
There is a clear gulf between what Generation Z needs and what they are getting. One near-universal ask is for more credit education. Whether it be family, social media or self-exploration, they seek knowledge through a variety of methods, with some more reliable than others.
“We aren’t always speaking the language they are,” Raneri said. “I feel there’s probably an initiative that we can all get behind to help people who are younger learn about credit earlier so that they don’t have to go through hard times to learn from it.”
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