Generation Z may be worse off than Millennials, thanks to inflation and debt

The financial hardships burdening Generation Z could help explain the challenges President Biden faces in connecting with younger voters, who see inflation as their biggest concern. Just 32% of voters People under 30 in May said they would support Biden if the election were held today, giving him a 2 percentage point lead over Donald Trump, according to the University of Chicago's GenForward poll.

Compared with millennials of the same age, Generation Z has more debt of all types — including credit cards, car loans and mortgages — after adjusting for inflation, according to TransUnion's internal records. The credit reporting agency found that today's 22- to 24-year-olds are more likely to be late on credit cards and auto loans than the generation before them.

Debt burdens have risen faster than income for Generation Z, TransUnion found. Debt was equivalent to about 16% of Gen Z's income at the end of last year, compared to 12% for Millennials a decade ago.

Sarah Martin, a 21-year-old in Pittsburgh, began racking up credit card debt two years ago with impulse purchases like clothes and makeup, after pandemic restrictions finally lifted. Things spiraled out of control with some emergency dental work, causing her to max out one credit card and get close to getting another. In all, Martin has accumulated about $8,000 in debt, which she is still working to pay off.

She said the financial challenges she faces are unavoidable. Martin was in elementary school during the Great Recession, when her parents lost their jobs and then their home. She now faces many of the same financial hurdles in early adulthood, making her nervous about the future.

“I grew up with a lot of financial turmoil, and it just seems to be constant,” said Martin, who is living with her parents while she studies to become a medical coder. “Sure, high interest rates made me feel like I was constantly running toward paying off my debt, but that was never going to happen.”

Nearly 1 in 7 Gen Zers have maxed out their credit cards, more than any other generation, according to the Federal Reserve Bank of New York. The implications of this debt are also much higher than in the past, with average interest rates on credit cards reaching all-time highs. Close to 22 percent.

“Even if you adjust for inflation, those credit card balances [among Americans in their early 20s] It increased by about 25 percent. Ted Rossman, a credit card analyst at Bankrate, said delinquency rates among young people are higher now than in the past. “Just starting out and already falling behind the eight ball can be a difficult cycle to break.”

Economists say the timing is also important: The pandemic forced Generation Z to shelter in place at home during their high school and college years, when they otherwise would have gone out with friends, gone to concerts or traveled. Many were eager to make up for lost time when the world reopened in 2021.

That's also when banks started Relax their rules About who can qualify for a credit card, providing easier access to even the youngest borrowers.

Thomas Black got his first credit card when he turned 18 in 2021 — and maxed it out right away. He spent about $1,000 on gas and Christmas gifts, then racked up a few thousand dollars in debt when his car broke down.

“I spent the first three years of my adult life trying to pay that back,” said Black, who works for a security company in Akron, Ohio. “I signed up for every extra shift I could, working 84 hours a week, just to keep things straight.”

Generation Z is coming at a very different time than Millennials, whose first days in the workforce coincided with two recessions. Many struggled to get jobs, especially in the wake of the Great Recession, when the nation's unemployment rate hovered around 10 percent for more than a year. Their wages took a huge hit as well. On average, millennials lost out About 13 percent of their profits between 2007 and 2017, according to economist Kevin Raines.

By contrast, the recovery since the pandemic has been rapid and broad. Unemployment was Less than 4 percent for the longest period in 50 years through May, and younger workers in particular saw some of the biggest wage increases. Wages for people aged 16 to 24 rose by 8.6 percent last year, compared to an overall increase of 5.2 percent, according to a new report. Federal Reserve Bank of Atlanta.

However, rising prices are dealing a big blow to Generation Z. Compared with other age groups, adults under 27 allocate more of their spending to essentials like housing, dining out, gas and car insurance — all of which have become much more expensive in recent years. , data from Moody's presentations.

“We are at an inflection point: [Gen Z is] “They are growing up at a time of high inflation and high interest rates — and that will stay with them,” said Jamie Lenz, a professor of financial economics at Duke University, whose work focuses on generational behavior. “There is the immediate impact: higher monthly payments on your credit card. But there will also be long-term impacts, such as it will be harder to afford a home.

Housing costs, which have risen rapidly since the pandemic, are by far the heaviest burden on Generation Z. Adults under 35 are most at risk. More likely to rent Rather than holding and tending to move often – both of which can lead to frequent price increases.

Overall, Generation Z is expected to spend more With an average of $145,000 On rent by age 30, compared to the $126,000 spent by millennials at the same age, after inflation, according to an analysis. Census data by RentCafe. Rent in major coastal centers like the San Francisco Bay Area, Boston, and Honolulu has become especially more expensive for young people today.

in birmingham, Ala. The rent for the apartment that Edward Wyckoff, 25, shares with his mother has jumped from $900 to $1,300 in the past few years, an increase of 44 percent.

Wyckoff was a sophomore at the university when the pandemic began. He put his studies on hold partly so he could help with family expenses, but says completing his degree is more difficult than ever. He already has $18,500 in student loans and is worried about taking on more debt.

“It has ingrained in me that religion is a trap,” he said. “It seems like everyone I know is drowning in debt.”

Wyckoff hopes to return to school. He has worked a series of jobs to save money — driving a shaved ice truck and working as an assistant at a law firm — and is applying for scholarships and grants to ease the financial burden.

“Everything is costing me so much that I have had to work harder than I thought,” he said. “I thought I could get away with studying and working; I had to choose work. It feels like a dead end, especially with the student loans I already have.

Not only are Gen Z members more likely to have student loans, but they also have higher debt balances than millennials, according to Federal Reserve Bank of St. Louis. As of June 2022, the average debt of students ages 20 to 25 was about $21,000, 13 percent more than millennials of the same age, after adjusting for inflation.

It is also the first generation in which recent college graduates are more likely to be unemployed than the general population. In a sharp reversal from long-standing norms, recent college graduates have had a harder time finding work than the rest of the population, according to the Federal Reserve Bank of New York.

Spencer Kamerman graduated from UC Irvine with a degree in computer science and engineering three years ago. Since then, the 25-year-old has worked at two tech companies, which he has done They were dismissed.

The latest bout of unemployment began eight months ago. He applied to hundreds of jobs and was a finalist several times, including at SpaceX and a government drone contractor, before losing to other candidates.

Kammerman, who exhausted his unemployment checks a few months ago, recently moved back in with his parents in Orange County.

“The odds seem to be stacked against us,” he added. “It's been hard to get off the ground. But I'm not giving up.”

Andrew Van Dam contributed to this report.