Generation Z is adopting credit cards earlier and using them more aggressively than previous generations. But its use of credit cards more than other generations isn’t what’s raising alarm bells. Recent data shows that Gen Z has higher balances and delinquency rates than millennials had at the same age.
With high inflation and rising living costs, Gen Z’s early reliance on credit cards could become a long-term financial hurdle for those who don’t know how to manage credit responsibly.
[READ: Best Credit Cards for Beginners]
Gen Z as Early Adopters of Credit Cards
Compared with millennials, Gen Z consumers — born from 1997 to 2012 — use credit at higher levels in their early adulthood. A 2024 study conducted by TransUnion, “Solving for Z,” compared the credit usage of Gen Z consumers between the ages of 22 and 24 in the fourth quarter of 2023 to that of millennial borrowers who were the same age in 2013. The study found that 84% of Gen Zers used credit cards, compared with 61% of millennials. Gen Z consumers aren’t just using credit cards earlier. They are also racking up higher balances and delinquency rates, which could spell trouble. Pairing greater credit card use with higher rates of overspending and falling behind on payments can be problematic.
The TransUnion study found that, adjusted for inflation, Gen Z consumers had balances over $500 higher than their millennial counterparts at the same age. Additionally, 10% more Gen Z consumers were 60 or more days past due than millennials a decade earlier.
What’s Driving Gen Z to Credit Cards?
Why is Gen Z using credit cards so much? The TransUnion data points to inflationary pressure. From the end of 2013 to the end of 2023, the consumer price index — a measure of inflation — rose cumulatively by 32%.
Amid elevated inflation, it’s not just Gen Z that is using credit cards more. The cost of living has increased for all generations, and Gen Z consumers increasingly turn to credit to manage expenses.
Credit cards are especially appealing because of their convenience. Many credit cards allow cardholders to earn rewards and receive benefits. Gen Z consumers establishing credit can also use student or secured credit cards to build a positive credit history.
[READ: Best Credit Cards for Students]
How Issuers Design Credit Cards for Gen Z
Gen Z consumers typically value credit-building features, a modern banking experience and personalized rewards. Credit card issuers cater to Gen Zers with digital-first account features and rewards and benefits that fit their spending patterns.
“Authenticity plays a key role,” says CJ MacDonald, founder and CEO of Step, a fintech company that provides financial tools to help make money decisions. “Meaningful solutions that address (Gen Z) challenges and needs will be adopted, while predatory approaches or unfair practices will quickly fail.”
Offering digital-first credit card accounts includes online and digital wallet access as well as instant virtual cards. Online access with options to manage everything from ordering replacement cards to communicating with customer service is decidedly Gen Z friendly.
Rewards cards that appeal to Gen Z consumers may offer bonus points for streaming services, Uber cash or DoorDash statement credits.
As buy now, pay later services are available at nearly every checkout page, credit card issuers have introduced features that blend credit card and BNPL features. For example, Chase offers Pay Over Time, which allows eligible cardholders to break purchases of $100 or more into monthly payments, charging a fixed monthly fee instead of interest.
[READ: Best Credit Cards for Young Adults.]
Smart Habits for Gen Z Cardholders
Though some Gen Z cardholders carry higher balances and face delinquency at a higher rate than millennials at the same age, Gen Z consumers tend to be less likely to splurge on purchases.
“Gen Z can balance the appeal of rewards with the risk of debt by treating credit cards as a payment tool, not a borrowing tool — only spending what they can afford to pay off in full each month,” says Kristy Kim, founder and CEO of TomoCredit, a financial wellness platform that helps immigrants and other underserved groups access credit without a credit score.
With a careful outlook on finances, Gen Z cardholders are well-positioned to adopt smart credit habits. Here are some ways to do that.
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High Balances and Delinquencies: Gen Z’s Toxic Relationship With Credit Cards originally appeared on usnews.com
