Gen Z is Drowning in Credit Card Debt

Young consumers have become a little too willing to swipe their credit cards to pay for purchases — whether to pay necessary bills or just to indulge in the finer things in life, even though they can’t afford them.

Why It Hurts: Despite high inflation, consumer spending is still breaking records. That’s a conundrum for economists. But it points to a vibe shift in spending habits — people putting expenditures on credit and dealing with the bills down the road. That’ll likely lead to significant consequences for wealth building, social mobility, and job flexibility for the generation.

Between the Purchases: Total American credit-card debt hit $1 trillion last year… and Gen Z habits may dig that hole deeper.

• TransUnion found that the average credit-card balance for people aged 22 to 24 at the end of last year was $2,834 — 26% more than millennials a decade ago at the same age.
• Credit Karma found that Gen Z is acquiring debt at a faster rate than any other generation, with their debt increasing by an average of 3.2% earlier this year… while millennials, Gen Xers, and baby boomers went up by 2.4%, 2%, and 1.6%.
• Unfortunately, Gen Z can’t keep up with the payments, which is hurting their credit scores — the average Gen Z credit score dropped to 659 during Q2, while the number with “subprime” credit (below 600) increased to 33%.

Final Bill: So, what’s behind the Gen Z debt? Courtney Alev, a consumer advocate at Credit Karma, says that the generation “prioritizes fun over finances” (pandemic revenge-spending, points and rewards tied to card use) despite having “fewer earning years” to build up enough of a salary to manage that debt. But the same weight must be given to inflation, high interest rates, and the soaring cost of living. Plus, it’s never been easier to access credit lines, thanks to loosening bank restrictions, digital wallets, and BNPL services.

If the trend continues, many future job decisions may be based on what makes it easiest to pay off the debt.