Understanding the Financial Landscape: How Gen Z is Navigating Credit and Debt in 2024

In today’s rapidly evolving financial landscape, understanding how different generations manage their finances is crucial. At O1ne Mortgage, we are committed to helping you navigate these complexities, whether you’re a first-time homebuyer or looking to refinance. Call us at 213-732-3074 for any mortgage service needs. In this article, we delve into the financial behaviors of Generation Z, exploring how they are managing credit and debt in 2024.

Interest and Card Balances Growing Faster Than Wages and Inflation

Since 2022, the costs consumers bear have risen significantly. This includes not only consumer goods like food and shelter but also interest payments on their debts. Despite these rising costs, consumer credit markets remain healthy, according to an Experian analysis of data from the second quarter (Q2) of 2024.

With unemployment still near a historic low, more consumers have the income to service their monthly credit card and auto payments, even though these payments are higher in 2024. Although delinquencies on some types of credit have increased, Experian data shows they are not far off record-low levels. Both of these factors contribute to the rise in average consumer credit scores, even though consumer confidence indicators suggest that some consumers have felt uneasy about the economy for some time.

Wage Growth vs. Credit Card Balances

With lower unemployment rates, workers are asking for and receiving wage increases, reversing a trend that has persisted for over a decade. For the first time since the Great Recession, wages have been growing faster than inflation. However, credit card balances have only recently begun to moderate from double-digit percentage increases over much of the past two years. As of June 2024, credit card balances were still increasing by nearly 12% annually, outpacing both wages and inflation.

Some of this spending may be pent-up demand, such as vacations deferred during the pandemic. However, some increases in credit card spending could equally be due to higher costs. Price hikes for large, non-discretionary components of the consumer basket of goods, such as rent and auto insurance, have left less cash available for discretionary spending, leading to increased credit card usage.

Younger Workers Getting More, Spending (Somewhat) Less

According to Federal Reserve Bank of Atlanta data, younger and lower-paid workers may be benefiting the most from recent wage gains. Workers aged 16 to 24 have been earning wage increases of more than 10% annually for much of the past two years and still earned 9% more in 2024. Meanwhile, prices have only increased by 3% over the past year (through June 2024).

Older workers over the same period also earned more than inflation, but their wage increases were about half that of younger workers. Although not all younger workers are lower-paid, many are. While on an individual level they may not feel their earnings power growing, their collective spending suggests that those earnings gains are being spent. Compared to other generations, young consumers appear to be showing some restraint—when you compare their balances to their credit limits, at least. Meanwhile, their FICO® Scores remain relatively constant.

Generation Z’s Financial Behavior

Among the generations, Generation Z adults, aged 18 to 27 in 2024, were the only generation not to grow their average balance more than their credit limits. In other words, while all other generations are using more of their credit and growing their credit utilization, Generation Z is using less of their credit than they were a year ago, in percentage terms.

Nonetheless, even though Generation Z is receiving a greater percentage of credit than they’re currently using, they still have far lower credit limits. The average credit limit for Gen Z consumers was $13,900 in Q2 2024, less than half of the $29,200 average credit limit of millennials. These lower limits also mean potentially less room for error: A $3,000 spending spree or car repair may cost the same in dollar terms for every consumer but impacts those with lower credit limits more.

Slowly but Surely, Gen Z is Gaining Experience With Credit

As Gen Z ages, these consumers have been increasingly taking on more types of debt besides revolving credit card debt. The percentage of Gen Zers with personal loans, auto loans, and even mortgages has grown substantially in 2024.

While younger workers may be receiving larger raises, there is likely new borrowing that will quickly absorb that extra income, if not in mortgages (or rent for that matter) but also other bigger-ticket items like auto loans, which, depending on where in the country you are, can be more difficult to avoid as adult responsibilities increase.

Conclusion

Understanding the financial behaviors of different generations can provide valuable insights into the broader economic landscape. Generation Z, in particular, is navigating a complex financial environment with rising costs and increasing credit usage. At O1ne Mortgage, we are here to help you make informed financial decisions. Whether you’re looking to buy your first home or refinance an existing mortgage, our team of experts is ready to assist you. Call us today at 213-732-3074 for any mortgage service needs.

By staying informed and making smart financial choices, you can navigate the complexities of today’s financial landscape with confidence. Let O1ne Mortgage be your trusted partner in achieving your financial goals.