Generation Z is heavily impacted by the escalating costs.

Gen Z experiences significant impact from inflationary pressures.

A recent study by credit report agency TransUnion revealed that people in their twenties today are facing bigger financial challenges than millennials did at their age. This was based on a comparison of credit usage among 22 to 24-year-olds from both generations.

Gen Z, those born between 1995 and 2012, have been affected by the Covid-19 pandemic and inflated prices due to high inflation. Meanwhile, millennials had to contend with the global financial crisis. Although both sets of young people had to cope with economic turmoil early in their careers, the current generation also has to grapple with soaring inflation and interest rate hikes.

These challenges have led to higher debt levels and delinquencies across various credit products. In fact, a separate report by TransUnion found that Americans' total credit card debt rose above $1 trillion for the first time in 2023.

However, experts stress that it's imperative for Gen Zers to develop healthy financial habits now, as their credit usage patterns could affect them in the long run.

In an interview with Before the Bell, Charlie Wise, head of global research and consulting at TransUnion, discussed why Gen Zers might be relying more on credit and offered some tips on managing debt.

Why do you think Gen Z is using credit more than their millennial counterparts did a decade ago?

There's been a significant rise in the cost of everyday expenses like food, rent, gas, and transportation. Gen Zers, who are mostly renters now, are facing increased rental costs. While homeowners' mortgages may not change significantly, renters' rent bills vary. This added expense could be contributing to the financial strain seen among Gen Z consumers.

What advice do you have for Gen Zers struggling with debt?

It's essential for Gen Zers to understand their spending abilities and avoid running up credit card balances just to pay the minimums each month. This could lead to accumulating more debt and taking a long time to repay their credit card debts. Consumers can also consider refinancing their credit card debt using personal loans with lower interest rates. This would allow them to make larger payments and eventually pay off their debts.

Should we be concerned about Gen Z's financial state?

While there might be cause for concern due to higher debt levels and delinquencies, the situation isn't yet considered a crisis. Gen Zers could potentially see rapid salary increases as they progress in their careers. They should strive to manage their borrowing within their means.

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A recent study by credit reporting agency TransUnion reveals that those in their early 20s are earning less, have more debt, and see higher delinquency rates than Millennials did at the same age. This information comes from the credit usage of 22 to 24-year-old Gen Zers, compared to Millennials who fell into that age range back in 2013.

Gen Zers, defined as those born between 1995 and 2012, have faced economic turmoil early in their careers, with the recent Covid-19 pandemic serving as their primary challenge. Conversely, Millennials, born between 1980 and 1994, had to navigate the global financial crisis.

However, the current group of young adults also battles rising inflation, which has led to elevated prices for everything from gasoline to groceries. Additionally, interest rates hovering at a 23-year high have impacted borrowing rates for auto loans, student loans, and mortgages.

But these trends aren't unique to early-career consumers. The entire US credit market has experienced increased debt levels and delinquencies across most credit products. One other notable figure is that Americans' total credit card balance went beyond $1 trillion for the first time in 2023.

The important thing for early-career consumers, particularly Gen Zers, is to establish a solid foundation of healthy financial habits. Before the Bell spoke with Charlie Wise, the head of global research and consulting at TransUnion, to dive deeper into Gen Zers' financial situation and provide suggestions for improvement.

Why do we see Gen Z tap into their credit more than their Millennial counterparts 10 years ago?

If you look at the expenses that Gen Z consumers are disproportionately affected by, you'll notice that the things with the highest price increases are the things they're likely to spend a good portion of their income on. Prime examples include rent, which has seen double-digit increases in recent years. Plus, other items like food, dining out, gas at the pump, and automobiles are becoming more expensive.

Do you have any guidance for Gen Zers who may be in a difficult financial situation?

It's important to realize that not everyone can afford to pay off their credit cards in full each month. However, racking up credit card debt and paying off only the minimums every month can create a vicious cycle of continually accumulating debt. It's a long slog to pay off your credit card balances when you're constantly using your cards and only making the minimum payments.

One option for consumers with high debt levels is to consolidate their credit card debt using personal loans with cheaper rates. This allows consumers to make significant payments and eventually pay off their debt. The key here is to avoid simply refinancing to pay off credit card debt only to return to racking up credit card debts shortly after.

Is it safe to conclude that there's cause for concern when it comes to Gen Z's financial well-being, but the situation is more of a 'wait and see' than a crisis?

This is an accurate assessment. Although average credit card balances per consumer adjusted for inflation are 26% higher than they were for Millennials a decade ago, it's not yet a cause for alarm.

Though Gen Z consumers experience higher delinquency rates, there are several reasons for optimism. Firstly, Gen Z could see substantially increased salaries as they progress in their careers. Furthermore, they need to be mindful about their spending and avoid borrowing more than they can comfortably pay off.

Economic expansion occurred in the first three months of the year, with a 0.6% increase in GDP compared to the previous quarter, as revealed by the Office for National Statistics on Friday. This growth follows a 0.3% decrease in the fourth quarter and a meager 0.1% rise in the third quarter of the previous year. A recession is typically defined as two consecutive quarters of economic decline.

This early-year development is attributed to "widespread growth" in the service sector, which experienced a 0.7% output surge during the quarter after a dip in late 2022, according to the ONS.

The UK's economic prospects have improved, with the Bank of England predicting a 0.5% growth rate this year, twice the rate it projected in February. In contrast, 2022 saw a paltry 0.1% GDP increase.

Additionally, signs of a brighter economy emerged in April, as combined output in manufacturing and services experienced the strongest increase in nearly a year, according to a survey by S&P Global. The service sector occupied the primary role in this expansion.

Despite these positive signs, the UK economy appears to be lagging behind its counterparts.

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Coming Soon

Monday: Federal Reserve Vice Chair Philip Jefferson and Cleveland Fed President Loretta Mester will deliver speeches.

Tuesday: Releases from Home Depot, Jack in the Box, and Alibaba. The US Labor Department announces the Producer Price Index for April. The NFIB unveils its latest small business index.

Wednesday: Earnings from Cisco Systems. The US Labor Department issues the Consumer Price Index for April. The US Commerce Department discloses April figures for retail sales. The National Association of Home Builders unveils its NAHB/Wells Fargo Housing Market Index for May. Minneapolis Fed President Neel Kashkari delivers a speech.

Thursday: Earnings from Walmart, Applied Materials, Deer & Co, and Baidu. The US Labor Department shares the number of new unemployment claims in the week ending April 11. The US Commerce Department unveils April figures on housing starts and building permits.

Friday: The Conference Board releases the US leading economic index for April.