Generation Z and Their Credit Card Usage

The younger generation, known as Generation Z, is making their mark in the world of credit cards. According to TransUnion, a consumer credit-reporting agency, the total credit-card balances for Gen Z consumers reached an impressive $55 billion in the second quarter. This figure reflects a significant 52% increase from the $36 billion reported during the same period last year.

Overall, total credit-card balances hit a remarkable milestone of $963 billion in the second quarter, representing a substantial 17.4% surge from the $821 billion recorded in the previous year. Although this growth is notable, it's vital to mention that the delinquency rate for loans past due for more than 90 days for credit cards slightly rose to approximately 2.1% in the second quarter, up from 1.6% last year. However, it was slightly down from the first quarter of 2023.

Despite these statistics, experts argue that things are looking positive for these young consumers. The surge in credit-card debt can be partially attributed to a larger group of Gen Z individuals entering adulthood and navigating their financial independence. Michele Raneri, Vice President of U.S. Research and Consulting at TransUnion, suggests that this increase is expected under the circumstances.

Gen Z's Credit Scores

Interestingly, Gen Z consumers seem to be proficient credit-card users compared to their predecessors. Charlie Wise, Senior Vice President of Research and Consulting at TransUnion, notes that they engage with credit more frequently and exhibit better performance and confidence.

According to a report presented at the 2023 Financial Services Summit, a higher proportion of Gen Z consumers have a credit score at or above "prime" levels. This means they possess a VantageScore of at least 661-720. In comparison, when millennials were the same age, approximately 50% of them had a credit score lower than prime, whereas only 40% of Generation Z fall into this category.

The data released by TransUnion highlights the financial potential and responsible credit card usage displayed by Generation Z. Their impressive figures suggest a promising future for these young consumers.

Consumers with Prime Credit

According to a report, consumers with prime credit are considered safe for lenders and creditors. The report found that about 50% of millennials had a less-than-prime credit score compared to 40% of Gen Z at the same age.

Historical Impact on Financial Perspectives

Historic moments have played a significant role in shaping the financial perspectives of different generations. While millennials had to navigate their way through the financial crisis in their early adulthood, members of Generation Z had easier access to credit due to the pandemic and emerging tools like buy-now-pay-later. This option allows them to break expenses into installments with simple or no interest.

Gen Z's Optimistic Worldview

Gen Z has a more optimistic worldview when it comes to their finances, according to Wise. As more Gen Z consumers enter adulthood, credit-card usage is expected to continue growing. However, the key lies in providing them with proper credit education regarding borrowing, particularly considering high interest rates and inflation.

The Unique Nature of Credit Cards

Wise highlights that credit cards are a unique financial vehicle. They can be used for borrowing but are often used for spending as well. It is crucial for individuals to learn effective budgeting techniques and recognize when it is not advisable to use a credit card.

Making Informed Decisions

For instance, if someone is using a credit card to buy furniture for their first apartment or go on vacation, carrying a balance on a credit card with a 25% interest rate may not be the best choice. Wise emphasizes the importance of making informed decisions regarding credit card usage and understanding the potential consequences of high interest rates.