Young people are grappling with lower salaries, higher levels of debt, and elevated delinquency rates compared to Millennials at similar ages.

In addition, young adults in their early 20s are also dealing with the pressure of persistent inflation, which affects everything from gas prices to food costs. The results of the study, conducted by the credit reporting agency TransUnion, highlight the financial landscape of Generation Z individuals, aged 22 to 24, contrasting with the experience of Millennials in the same age group in 2013, when their credit habits were examined.

Generation Z, composed of individuals born between 1995 and 2012, just like Millennials, who include those born between 1980 and 1994, has faced economic challenges early in their careers. While the younger generation contended with the impacts of the COVID-19 pandemic, Millennials experienced the global financial crisis.

However, today’s young adults, in their 20s, face a new hurdle: persistent inflation driving up prices on everything from fuel at gas stations to groceries in convenience stores.

Interest rates, which have reached their highest level in 23 years, have also impacted loan rental rates for vehicles, student loans, and mortgages. This challenge is not exclusive to early-career consumers; the entire U.S. credit market has been dealing with high levels of debt and delinquency across various credit products.

Additionally, another report from TransUnion revealed that the total balance of Americans’ credit cards surpassed the $1 trillion mark for the first time in 2023.

As Generation Z members progress further in their credit journeys, it is crucial for them to establish healthy financial habits now, which will benefit them in the future, experts say.

The Before the Bell program spoke with Charlie Wise, head of global research and consulting at TransUnion, to discuss Generation Z’s financial situation and what they can do to improve it.

When asked why Generation Z appears to be more engaged with credit compared to Millennials a decade ago, Wise suggests that this can be attributed to a variety of factors.

If we consider prices and the cost of living, the areas where we have seen significant increases are those where Generation Z is more likely to spend a substantial portion of their income. Rent is a significant expense, with double-digit increases in recent years. Additionally, the costs of food, dining out, gasoline, vehicles, and transportation have also risen considerably.

Most Generation Z consumers do not own their homes; they are renters or live with family or friends. However, for those who are renters, they face challenges that homeowners, who purchased their homes before 2022, do not encounter.

Owning a home can provide stability, as mortgages generally remain constant, unlike rent, which can fluctuate. This discrepancy is one of the main reasons financial pressure is mounting among Generation Z consumers.

It is important for consumers to understand that not everyone has the resources to fully pay off their credit cards each month. However, continuing the cycle of credit card spending while only making minimum payments creates a vicious cycle of debt accumulation. Paying only the minimum each month will significantly extend the time needed to pay off the credit card balance, especially if the cards continue to be used.

Understanding what you can afford and where you can spend is crucial. In some cases, consumers face high levels of debt, but there is an opportunity to refinance this credit card debt in a more affordable way. Personal loans emerge as a viable option for this. With fixed monthly payments, consumers can consolidate their credit card debt into a more economical format.

Within two years, it is possible to pay off such debts. The key is not to use loans to pay off credit card debt and then continue accumulating high-interest debt. It is essential to take immediate action after this consolidation, especially in the face of interest rates that have reached their highest level in 23 years, also affecting rental rates, vehicle loans, student loans, and mortgages.

Is it fair to say there is cause for concern regarding Generation Z’s financial health, or is this more of a “wait and see” situation than an imminent crisis?

Once again, we observe that the average credit card balance per consumer is 26% higher than it was for Millennials a decade ago, even adjusted for inflation. This suggests that Generation Z consumers are increasingly turning to debt.

However, despite the rising delinquency levels we are witnessing, I do not believe this is necessarily a reason to panic.

Certainly, Generation Z consumers are potentially at a stage in their careers where they may experience significant and rapid salary growth as they progress in their jobs, receive promotions, or take on new roles within their organizations—or seek employment opportunities offering higher salaries.

At the same time, it is essential to ensure that borrowing and spending remain within their financial capacity.

Therefore, while young Generation Z adults may have a bright future ahead in their careers, it is critical for them to cultivate responsible financial habits as well. This includes carefully managing debt and ensuring their spending aligns with their financial means. By doing so, they can build a solid foundation for a stable and prosperous financial future. It is a delicate balance between professional aspirations and financial responsibility, but investing in strong financial health early on is key to navigating challenges and seizing opportunities that arise along the way.

The importance of financial education has never been more evident than it is today. In a world where consumption and credit options abound, the ability to understand and effectively manage personal finances is crucial for long-term financial well-being.

A solid financial education offers numerous benefits. Firstly, it enables people to make more informed and conscious financial decisions. By understanding concepts such as budgeting, saving, and investing, individuals can make choices that help them achieve their financial goals and avoid common financial pitfalls, such as excessive debt.

Furthermore, financial education helps people plan for the future. By learning to set realistic financial goals and create a plan to achieve them, individuals can ensure their long-term financial security. This includes preparing for retirement, purchasing a home, and building an emergency fund.

A strong understanding of personal finance also promotes financial resilience. In the face of economic crises or financial setbacks, financially educated individuals are better prepared to cope with challenges and recover quickly. This can include having a contingency plan for times of economic instability and understanding insurance options to protect against financial losses.

Additionally, financial education empowers individuals to take control of their financial lives. By acquiring knowledge about personal finance, people feel more confident and equipped to make financial decisions that benefit themselves and their families. This can lead to greater financial autonomy and a sense of security about the future.

In summary, financial education is fundamental to financial success and personal well-being. By investing in solid financial education, individuals can reap the benefits of a healthier and more prosperous financial life, both now and in the future.