As costs go up, Gen Z is relying more on credit

  • Gen Z is more reliant on credit than other age cohorts.
  • Although their credit card balances are low right now, debt will grow with age and external factors like inflation and student debt may make things more difficult for the age cohort.

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As costs go up, Gen Z is relying more on credit

More than 40% of Gen Z consumers report being more dependent on their credit cards to manage their expenses, according to recent research. Factors like rising grocery prices and the recommencement of student debt payments are contributing to increased reliance on credit. 

It isn’t just Gen Z that’s feeling squeezed by prices – 35% of all consumers reported relying on credit cards to cover expenses they usually paid through other means. 

This reliance on credit is impacting credit card balances, as well. Gen Z’s credit card balances hovered at $784.5 billion in 2022 but saw an increase of $125 billion by Q3 of 2022. This growth is at odds with the plateau experienced during the pandemic. Overall the total amount of credit card debt has returned to trends from the pre-pandemic era, according to Experian

Zooming into Gen Z

53.1% of Gen Z consumers report having more than one credit card, and the average credit card limit for this age cohort is $11,290. Meanwhile, this demographic has relatively low credit balances which hover at $2,854. Similarly, Gen Z also has lower auto and student loan balances. However, it is likely that these numbers will increase as Gen Z age and make it out of their undergraduate/graduate degrees. 

For one, credit card debt for Gen Z will likely increase as they age, and second, external factors like rising grocery prices are adding to pressures faced by all consumers. In 2022, raw food prices rose by 11.4% and prices are expected to increase another 5.8% this year. 

line chart showing year-over-year change in consumer price index in the categories of food at home and food away from home. Food at home has been getting more expensive since July 2021
Source: CNBC

Gen Z’s young age impacts more than their debt. They are also the least financially literate among all the age cohorts. In a survey about personal finance, two-thirds of Gen Z respondents answered 50% or fewer questions correctly. Limited knowledge about personal finance and a greater reliance on credit can create hardships for the age cohort in the future. 

On the bright side, financial literacy has risen in importance recently and Gen Z is the age cohort that has the most exposure to classes on personal finance. Nearly half of Gen Z consumers report taking such classes in college, underscoring how educational institutions can enable access to healthier financial lives. 

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