Financial Inclusion

GenZ Gets Friendly With Credit

Gen Z's Friendlier Relationship With Credit

Generation Z is growing up. The oldest members of the generation born between the mid-90s and the mid-2010s (specific year ranges vary depending on who is supplying the figures) are graduating from college, getting their first jobs and starting to form their relationships with credit products.

And based on early indications, it seems the follow-up act to the millennial generation is much more positively inclined toward using credit products of all stripes. The percentage of credit card-eligible Gen Zers who carry a balance increased by 41 percent between Q2 2018 and Q2 2019, according to a new report from TransUnion, reaching a total of 7.75 million.

That is a much more active rate than seen in older generations during the same time period. Far more millennials and Gen Xers make use of credit cards than Gen Zers – at 38.29 million and 38.27 million, both cohorts have roughly quintuple the carrying rate. But the growth is much slower – 5 percent and 3 percent for millennials and Gen Xers, respectively.

And, at least thus far, the new Gen Z entrants to the credit market seem to be managing their debt about as well as their older counterparts, according to the study data.

“Card delinquencies for Gen Z are roughly in line with millennials and Gen Xers,” Kristen Bataillon, senior manager of research and consulting at TransUnion, told USA TODAY.

Credit cards aren’t the only area where Gen Z is showing strong interest in lending products. Auto loans were up 40 percent year on year, according to TransUnion, and personal loans were up by about 45 percent.

Gen Zers with mortgages jumped 112 percent year on year between 2018 and 2019 – though big growth is easy when starting with small numbers. In 2018, there were about 150,000 mortgages among the generation, and as of 2019, there are 310,000. All in, mortgages remain the underwriting product Gen Z consumers are least likely to have – which is unsurprising, given their maximum age and attendant life stages.

Credit cards, however, show the greatest strength. Currently, according to TU, there are about 31.5 million card-eligible Gen Z members – only about 5 percent of total U.S. card accounts. But their numbers in the market are set to rise along with their average age: By 2022, there will be 44.5 million Gen Zers in the market who are eligible to carry credit cards.

“The rapid growth in Gen Z credit activity is occurring despite many of these individuals having grown up during the Great Recession,” Matt Komos, vice president of research and consulting at TransUnion, said in a statement. “As we see more members of this group come of age, we naturally expect continued growth in credit activity by Gen Z.”

Early data indicates that Gen Z is a bit warmer to the idea of taking on debt than millennials – but it is still a very early indication. Some of Gen Z is entering adulthood, with the oldest members of the generation around 22 years old. But more than half of Gen Z is still under the age of 18 and thus not credit-eligible, and the youngest members of the generation are still in elementary school.

It might be a bit early to be making long-term pronouncements about the credit opinions of an age demographic whose youngest members are still more than a decade away from being eligible for their first credit card.

After all, an awful lot can happen both technologically and economically in the next decade. And it is probably safe to forecast that at least some of those happenings will influence the future credit preferences of today’s third graders. Early data is good – but staying current as the situation evolves on the ground is likely a good idea.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.