Credit Card Debt Pressures Millennials and Gen-Z Borrowers

Credit card debt is harder for younger consumers to handle amid the pressures of living paycheck to paycheck.  

To that end, the Urban Institute reported that nearly one in five adults between 18 and 24 with a credit file in the U.S. currently have debt in collections. In addition, according to the Institute, young adults are particularly vulnerable to credit card, auto loan and retail delinquencies compared with older adults.

Where 5 percent of millennials and 4.5 percent of Gen Z consumers have credit card debt that is more than 60 days delinquent, just 3.5 percent of Gen X borrowers and 1.8 percent of boomers are behind on payments like that.

There are some indications, per PYMNTS’ own research, that the debt load has accumulated in recent weeks, particularly for paycheck-to-paycheck consumers. During the most recent holiday shopping data, kicking off with Black Friday, 45 percent of paycheck-to-paycheck consumers leaned heavily on credit and financing to get Black Friday deals, paying for nearly 60 percent of their purchases in these ways. And we found that millennials relied more than any group on financing, with 45 percent of this cohort reporting use of credit, personal loans and buy now, pay later (BNPL) options to finance 51 percent of purchases.

Majority of Younger Consumers Live Paycheck to Paycheck

70 percent of millennials live paycheck to paycheck, we found, as do 65 percent of Gen Z consumers. There’s not all that much of a cash cushion to use to prop up savings and pay down debt. Generation Z consumers who live paycheck to paycheck and have issues paying their monthly bills report the lowest average savings at just $1,158. Millennials living paycheck to paycheck with issues paying their monthly bills report having an average savings amount in the bank of $3,731. 

Credit card debt has become more expensive in the wake of interest rate hikes, and average interest rates charged on that debt now stands at about 19 percent, an-all time high, per data from Bankrate.  

Across-the-Board Warning Signs 

There are some warning signs in the economy at large, as the St. Louis Federal Reserve, which showed that the delinquency rate on credit cards for all banks at the end of the third quarter stood at 2.1 percent, up from 1.9 percent in the second quarter and up from 1.6 percent a year ago. Overall, credit card balances had risen by $38 billion, a 15 percent year-over-year increase and the most outsized jump in 20 years.  

Paycheck-to-paycheck consumers are three times as likely as other cohorts to revolve credit card debt and carry higher monthly balances overall. Since 83 percent of us live paycheck to paycheck, the read across is that a significant percentage of consumers are carrying debt that must be serviced monthly.

As for the younger generations, a mid-year Digital First Banking Tracker done in collaboration between PYMNTS and NCR noted that more than half of teens feel they are financially unprepared for the future, at 54 percent.

For younger consumers — given their comfort with digital channels — the opportunity is there for banks and FinTechs to step in and help boost financial literacy and wellness. Intuit, for example, is buying FinTech SeedFi to help legacy lenders launch new consumer lending products. And as profiled over the summer, there’s significant opportunity to help younger consumers invest. Atomic Investment has launched an investing API that enables FinTechs and banks to seamlessly integrate investing into their products and services, including features for younger investors.