Generation Z is hitting the ground running.
The number of those who belong to Generation Z carrying a credit balance has risen by 41% over the past year to 8 million people, according to a new report from consumer credit reporting agency TransUnion TRU, +1.78%. Over 70% of credit-eligible Gen Z consumers has a credit card.
The number of those who belong to Generation Z carrying a credit balance has risen by 41% over the past year to 8 million people.
“One of the first products consumers have is a card or a student loan,” Kristen Bataillon, a senior manager of research and consulting at TransUnion, said. “About a quarter of Gen Z had both a credit card and a student loan, and just under half have a credit card and no student loans.”
“Millennials came of age during the Great Recession, whereas Gen Z is becoming credit eligible during one of the strongest economies we’ve seen in years,” she told MarketWatch. “That makes a comparison difficult because a strong economy increases consumer confidence, and that is indicative of credit participation.”
Generation Z consumers — defined as individuals born in 1995 or after — are typically more frugal than their millennial counterparts. This, experts say, is largely a result of the economic environment in which many members of Gen Z grew up. Whereas millennials began entering the workforce during the Great Recession, Gen Z watched it all go down from the sidelines.
Millennials began entering the workforce during the Great Recession. Gen Z watched it all go down from the sidelines.
They are more likely to start saving money at a younger age, according to a 2018 survey from the National Society of High School Scholars. Gen Z has also seen firsthand the burden of student debt that millennials — often their older siblings — are carrying. Borrowers today leave college with approximately $30,000 of debt on average.
And this number is making Gen Z think twice about taking on massive loans to pay for their education. Gen Z students are more likely than millennials to say they work a part-time job in college to offset the cost, according to a 2019 TD Ameritrade TD, +1.30% study. And they’re more likely to consider a less prestigious college to save money.
For those hoping to avoid debt, opening a credit card — and risking taking on credit card debt — may not seem like the best idea. But there are some benefits. “The earlier you open a card, the longer your credit history and that’s an important component of your credit score,” Jim Wang, the founder of financial advice blog WalletHacks, told MarketWatch.
It could take seven to 10 years for most individuals to fix their credit scores after making a mistake when they’re young.
A good credit score typically increases your chances of getting approved by a landlord for a rental, gives you better odds of getting approval for a loan, and allows you to borrow money at a lower interest rate.
“Getting a card early gives you more time to learn how to be responsible with credit,” Wang said. “When you get a card early, it often has a lower credit limit.”
For responsible borrowers, there are advantages to opening a credit card at an early age. But if you’re not careful, you can get yourself in trouble quickly. “If you don’t think you can handle the responsibility of having thousands of dollars in spending power, it’s not a big deal to wait a few years,” Wang said.
She predicts says it could take seven to 10 years for most individuals to fix their credit scores after making a mistake when they’re young.
Marsha Barnes, a certified financial social worker and the founder of The Finance Bar, predicts that Gen Z will be more responsible with credit than millennials. “There are more conversations around money happening on campuses today than there were for millennials. So I do think they’ll be a little bit more cautious,” she said.