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Challenges Faced by Gen Z in the Current Economic Landscape
In the fourth quarter of 2023, individuals belonging to Generation Z, in the age group of 22 to 24, were found to be earning an average income of $45,493. A decade prior, adjusted for inflation, millennials in the same age group were making $51,825 as reported by a recent study conducted by TransUnion. Furthermore, TransUnion discovered that the debt-to-income ratio for Gen Z is 16.05%, 4 percentage points higher than that of millennials which stood at 11.76%.
The Impact of Inflation on Gen Z’s Financial Situation
TransUnion attributes this income disparity to the economic environment that Gen Z has entered. Born between 1995 and 2012, this generation has faced a high inflation economy with a cumulative inflation rise of 32% since 2013. In June 2022, the consumer price index experienced a 9.1% year-over-year increase, the fastest in 41 years. Despite the Federal Reserve’s efforts to tighten monetary policy, inflation has remained high, with consumer prices excluding food and energy increasing at a 4.5% annualized rate in the first quarter of 2024.
TransUnion’s interviews with Gen Z individuals highlighted the financial stress they are facing, with 14% reporting feeling “extremely stressed out” about their financial situation. This is in stark contrast to millennials a decade ago, where only 8% expressed similar concerns. Additionally, only 8% of Gen Z respondents felt “extremely confident” in their finances, compared to 13% of millennials in 2013.
Consumer Sentiment and Credit Card Usage
Americans, in general, have expressed pessimism about the economy, with the University of Michigan Survey of Consumers showing a 13% decline in May. This drop reflects the impact of inflation on consumer sentiment.
To mitigate some of the financial challenges they face, Gen Z is turning to credit cards more than previous generations. According to TransUnion, 84% of individuals aged 22 to 24 had at least one general-purpose credit card in the fourth quarter of 2023, compared to 61% of individuals in the same age group a decade earlier. Additionally, over one-third of Gen Z respondents ranked credit cards as the most useful credit product, a higher percentage compared to millennials in 2013.
Jason Laky, Executive Vice President and Head of Financial Services at TransUnion, emphasized the trend of younger consumers relying on credit products to meet their financial needs. He noted that as long as inflation remains elevated and the cost of living continues to rise, balances across credit cards, personal loans, and auto loans are likely to increase.
TransUnion conducted a survey in February of 614 Gen Z consumers aged 22 to 24 and 623 millennials who were the same age a decade ago, defined as those born between 1980 and 1994.
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