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Research: For a generation just hitting the workforce, Gen Z has surprisingly good credit

  • Gen Z has higher average credit than Millennials and Gen X
  • But people born after 1996 will need more help in managing their finances.
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Research: For a generation just hitting the workforce, Gen Z has surprisingly good credit

Generation Z may be a young generation but their average FICO scores are higher than Gen X and Millennials. That's according to a recent survey conducted by LendingPoint of almost 5 million near prime people. For the generation born after 1996, the average FICO score is 637, compared to 629 and 632 for Millennials and Gen X respectively.

This is particularly interesting when you consider that a big component of credit scoring is the length of credit history, which, by definition, Gen Z currently has very little of.

As Gen Z hits the workforce, it makes sense that their average income ($47,825) is lower than the average for all generations ($66,339). This cohort is sensitive to tapping credit and rising debt levels, too. So, from a generational point of view, Gen Z carries a significantly lower (9.9% compared to 17.2%) debt to income ratio.

While wary of amassing debt, Gen Z also thinks about credit as form of payment. This generation uses point of sale loans to finance larger purchases, and indeed, 25 percent of their personal loans go toward paying for large expenses. Gen Z is 3X more likely than a Millennial to apply for loans for a major purchase.

Source: LendingPoint, Tearsheet Research

Other generations use new credit more frequently to consolidate existing debt.

It may just be a matter of time before more Gen Z constituents turn to credit cards and other forms of consumer credit as they emerge into adulthood. The number of Gen Z people that carried a balance on a credit card increased 41 percent year over year, according to research from TransUnion.

When it comes to spending, Gen Z appears to take care in determining what's worth spending on what's not. In general, Gen Z is a more frugal and fiscally responsible group:

  • 72 percent say that cost is most important factor when making a purchase
  • 47 percent use their phones in-store to check prices and ask family or friends for advice
  • 66 percent plan to attend college in-state to save on tuition

While credit and spending data is encouraging, there are signs that Gen Z is already creating poor financial habits. Having watched Millennials and Gen Z before them struggle with personal finance, Gen Z knows it needs help with decisioning. Managing money remains the most daunting challenge for college students for the fourth year in a row, with 47 percent of students saying they do not feel prepared to manage their money, according to research from AIG and EVERFI.

But how this generation uses the advice it receives remains to be seen. There are emerging signs that Gen Z is skeptical of the way the credit markets work and less interested in paying back the money they borrow in full and on time.

  • Sixty percent of students already have taken or plan to take loans to cover their tuition bills, but only 65 percent of borrowers plan to pay off these loans on time and in full.
  • Only 49 percent of students plan to follow a budget, which is down from 76 percent in 2012.
  • Only 60 percent of students plan to pay their credit card bill on time, down from 85 percent in 2012.

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