How Gen Z consumers use their credit cards

When it comes to paying with plastic, comfort levels vary from generation to generation. Our latest data, compiled in Bankrate’s December 2021 Credit Card Characteristics Survey, found that 55% of people aged 18-29 had at least one credit card. This rose to 73% for those aged 30 to 49, 78% for those aged 50 to 64 and 89% for those aged 65 and over.

Of all generations, Gen Z (often categorized as born between 1997 and 2012) tends to be the least likely to jump on the credit card bandwagon. There are a few factors that contribute to this. Among them are the lack of access to credit, the fear of falling into a spiral of debt and the rise in popularity of “buy now, pay later” alternatives.

At the other end of the spectrum, older consumers tend to have longer credit histories and greater access to a wider range of credit cards, making them more comfortable owning and buying. use credit cards.

Gen Z’s relationship with credit cards

With so many alternatives to traditional credit cards, many Gen Zers have put off adding a credit card to their wallet and are more likely to use debit cards to cover purchases. Another popular alternative is buy now, pay later (BNPL). Think of BNPL as an installment loan. It gives young consumers the opportunity to spread large payments over time and avoid falling into a spiral of debt by only using BNPL where it is accepted and only for certain purchases.

While Gen Z tends to have a reputation for being debt averse, some studies show that this group isn’t necessarily anti-credit card. But they are more cautious than older generations about how often they use them. According to Experian’s Credit Condition Report, Gen Z consumers have increased the number of credit cards they carry and have an overall credit card debt balance of $2,197, compared to Gen X cardholders who have an average credit card balance of $7,718.

How Gen Z compares to older generations

A few key generational differences have contributed to this shift in credit habits between older and younger generations. The Credit Card Accountability and Disclosure Act 2009 (known as the Credit Card Act) made it more difficult for consumers under 21 to obtain a credit card. credit without first meeting certain income requirements or securing a co-signer.

It also prevented credit card companies from marketing their products on college campuses. This shift has resulted in a delay in first credit card ownership for Gen Z who, unlike previous generations, were not targeted for credit products at a younger age and faced challenges. additional hurdles when it comes to accessing new credit.

Additionally, a MagnifyMoney survey found that 67% of Gen Zers rely on their parents for financial assistance, more than any other generation. This could make them less inclined to take on consumer debt without a reliable source of income to help them pay off their balance.

Even for older Gen Zers entering the workforce, rising inflation has made it harder to save and pay off debt compared to older consumers who tend to earn wages higher and have more money in their savings accounts.

What drives Gen Z’s financial decisions

Studies show that Gen Z are the least financially literate of all generations. Additionally, many Gen Zers fear taking risky financial moves after watching their parents weather the Great Recession, and millennials struggle to pay off student debt and get jobs afterwards.

In fact, Gen Zers cite money issues as a top stressor. Growing student debt, the economic fallout from the pandemic, and rising inflation are a few factors weighing on young Americans today. Experts say money and personal finances will continue to be a major source of stress for many Americans until the economy begins to move in a positive direction, post-pandemic.

Financial resources for Gen Z

Although not as knowledgeable about personal finances, Gen Z Americans have many options for improving their financial literacy. For many Gen Zers born in the digital age, the answer to most of their financial questions is at their fingertips. There are a number of personal finance books, influencers, podcasts, and government resources that can help them improve their overall financial literacy and take charge of their finances.

Gaining this knowledge and learning how to manage money well and build a positive credit history is a key step in reaching major financial milestones like buying a vehicle, becoming a homeowner or taking out a business loan. Creating a simple budget using a strategy such as the 50/20/30 method or the envelope method can help consumers avoid overspending and hold them accountable to their spending goals. savings and recurring payments each month.

These responsible financial habits pay off in the long run, demonstrating to major financial institutions that they can manage their finances and can be a trusted borrower in the future when applying for a new credit card or loan. .

The bottom line

Credit card ownership and spending habits vary across generations due to several external economic factors that can influence consumers and their comfort level with owning and using credit cards. For many Gen Zers, credit cards are considered a valuable tool, but should be managed responsibly and used sparingly.

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