Why Is Gen Z Struggling with Credit Card Debt?

Gen Z’s credit card debt is skyrocketing, raising alarms about financial literacy and the economic challenges facing young adults.

At a Glance

  • Gen Z and millennials have seen a 50%+ increase in credit card balances since March 2022
  • Buy now, pay later services are gaining popularity, especially during holiday seasons
  • The average credit card balance for those aged 22-24 is $2,834, up 26% from millennials a decade ago
  • Experts warn of potential long-term financial risks for Gen Z due to early credit reliance
  • Higher debt can lead to lower credit scores, affecting major life milestones

Rising Debt and Economic Pressures

Generation Z is facing a financial crisis as credit card debt continues to mount at an alarming rate. Recent data reveals that Gen Z and millennials’ credit card balances have gone up 50% since March 2022. This surge coincides with rising interest rates, creating a perfect storm of financial pressure for young adults.

A TransUnion study highlights the severity of the situation, showing that the average credit card balance for individuals aged 22 to 24 has reached $2,834. This figure represents a 26% increase compared to millennials at the same age a decade ago. The rapid accumulation of debt among Gen Z is raising serious concerns about their financial future and the potential long-term consequences of early credit reliance.

Buy Now, Pay Later: A Double-Edged Sword

As Gen Z grapples with rising debt, many are turning to alternative financing options like Buy Now, Pay Later (BNPL) services. BNPL is the opposite of the traditional “lay-away” plans which compel the customer to pay for the item before taking it home. These services have gained significant traction, especially during the holiday season, as they allow consumers to spread out payments. Adobe Analytics predicts an 11.4% increase in holiday spending using BNPL services compared to the previous year, with $18.5 billion in purchases expected from November 1 to December 31.

“Buy now, pay later can be an innovative tool for purchases you’re going to make anyway,” said Mark Elliott, Chief Customer Officer at financial services company LendingClub.

While BNPL services may offer short-term relief, they also come with risks. Consumer advocates warn against using credit cards for BNPL plans due to potential additional interest and fees. Moreover, these services can lead to overspending, as consumers may feel they have more money available for other purchases.

Financial Literacy and Long-Term Consequences

The growing credit card debt among Gen Z underscores a need for enhanced financial literacy. Many young adults are entering adulthood without the necessary skills to manage their finances effectively. This lack of financial education, combined with economic pressures and the allure of easy credit, is creating a perfect storm of financial vulnerability.

“The reality is that the increased cost-of-living and inflation have put more people in a situation where they’re already relying on revolving credit,” Elliott said.

The consequences of high credit card debt extend far beyond immediate financial strain. Higher debt levels can lead to lower credit scores, potentially affecting major life milestones such as buying a home or starting a family. Experts advise young adults to avoid high-interest debt, create debt repayment plans, and practice proactive financial management to secure their financial futures.

A Call for Action

The alarming rise in Gen Z credit card debt serves as a wake-up call for policymakers, educators, and financial institutions. There is an urgent need to expand financial education programs that cater specifically to the needs and pressures Gen Z experiences in today’s fast-moving economy. By equipping young adults with the knowledge and tools to make sound financial decisions, we can help prevent a potential long-term economic crisis and ensure a more stable financial future for the next generation.

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