As a Millennial, I’ve heard my fair share of criticism and disapproving remarks on our financial outlook from members of older generations. But, it’s a very strange feeling when you start hearing similar things from people within your own age group. After taking a hard look at our current economy, here are some real facts about how Gen Z is impacting national debt and credit usage.
What Are the National Statistics on Credit Usage?
Across the board, the average credit card balance and credit limit of Americans have been steadily increasing in recent years. This can’t be attributed to a single factor and varies greatly from person to person and quarter to quarter. However, credit usage is an important indicator of financial health on both an individual and national level.
Right now, Americans are carrying more debt and have higher credit usage than usual. Current statistics show that our credit card debt skyrocketed at the end of 2022. Although the total debt was $910 billion at the end of Q3 2022, it reached $986 billion by the end of Q4. This breaks down to an average credit card balance of $5,910 per person, which is an increase of 13.2% from the previous year.
Many economists believe this spike is due to inflation and interest rate increases implemented by the Federal Reserve. But, credit limits have also increased across all age demographics. Members of Gen X saw an average increase of 6.8%, Millenials received an 11.4% increase, and Gen Z experienced the greatest increase of 14.5%. Having access to a larger line of credit can often equate to greater credit usage.
And, this is further supported by the fact that more people are also applying for new credit cards. Application rates have steadily increased over the last few years, reaching the highest rate yet with a 27.1% increase in October 2022. Conversely, rejection rates decreased by 2.4%. These numbers suggest that more young Americans are using credit cards for their expenses.
How Does Gen Z Fit Into this Picture?
Whenever a new generation enters adulthood, it changes many financial statistics and national demographics. And, it’s fairly common for older members to be critical of this change.
For the purposes of this article, we’re looking at Gen Z which refers to people born between 1997 and 2012. As this group becomes legal adults and active participants in our economy, they will have a wide-reaching economic impact. However, we can learn a lot by looking at statistics from the last 12 months.
At the end of Q3 2022, this group had an average credit limit of $11,290 and a credit utilization rate of 25%. This rate was actually 3% lower than the national average. And, they also carried significantly less debt with an average amount of $2,854. However, Gen Zers who live in New York, California, and Texas have higher average balances than other states.
When looking at the average credit score, it ranks within the “good” range. In 2020, their average credit score was 674 and has since increased to 679. But according to data from Experian, Gen Z’s average credit score still remains well below the national average credit score of 714. While this may be a sign of poor financial management, it is more likely a result of this group having less credit history, fewer debts than other age groups, or not even having a credit card.
Learning How Credit Usage Impacts Your Credit Score
From this context, it doesn’t seem like Gen Z credit usage will drastically change national averages. But, there are some statistics that give cause for concern.
With more people applying for credit cards, there will be more credit card debt. This could be extremely problematic for young adults who don’t understand how credit works. If you don’t know how credit usage affects your credit score, you may be putting your financial future at risk.
If you are on the cusp of adulthood or have kids who are, take some time to understand why lenders look at credit utilization rates and how it impacts your creditworthiness. Part of becoming an adult is learning how to manage your finances. Credit cards are a powerful tool that can help you build a strong credit history. But like any tool, it requires knowledge and responsibility to use it effectively.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.