Roughly 1 out of every 7 credit cards owned by Gen Zers is maxed out, showcasing the difficult financial situation many of the younger generation find themselves in.
While some experts suggest it’s because of the generations’ lower-than-average credit ratings, others believe they have found themselves in a difficult financial situation because of careless spending and high interest rates.
A Generation Struggling Financially
Millions of Americans across the nation continue to struggle even while unemployment remains low and stock prices continue to surge. One generational group that appears to be struggling as much as any is Gen Z.
Gen Z, which refers to Amercians born between 1997 and 2013, has experienced significant credit card debt in recent years, according to research from the Federal Reserve Bank of New York.
Excessive Credit Card Debt for Gen Z
A study released by the Federal Reserve revealed that a staggering one out of every seven, or roughly 15%, of Gen Zers who have a credit card have maxed it out.
When compared to the 4.8% of Baby Boomers and 9.6% of Gen Xers who currently have maxed out their credit cards, it’s clear that Gen Zers are struggling financially.
One GenZer Shares Thoughts on Credit Card Debt
Ariel Barnes, a Gen Zer, told CNN she plummeted into credit card debt during her years in college. Yet, years later, she still remains in serious financial trouble.
According to Barnes, who currently lives in Jackson, Mississippi, she has seven credit cards, all of which are maxed out. Currently, she is in $30,000 of debt. “The interest is so high that it’s hard to get out of it,” she said.
Anxiety From Credit Card Debt
Barnes readily admits she made several bad financial moves when in college. However, the debt that has come along with it has left her severely anxious at all times, even leading her to speak with a therapist.
“I want children. The clock is ticking. But I can’t afford to have any children,” she said. “I’ve had to go to therapy because it is a lot mentally.”
Americans Struggling to Pay off Credit Card Debt
The NY Fed noticed in their study that many generational groups struggle to keep up with the mounting bills in the US after three consecutive years of high inflation.
They also confirmed that delinquency rates have surged in recent years after reaching record lows during the COVID-19 pandemic.
Credit Card Delinquencies Surpass Pre-Pandemic Levels
The findings reported by the NY Fed clearly show that credit card delinquencies have exceeded the levels witnessed prior to the pandemic, and they continue to rise.
Americans who have a credit card bill that’s 90 days overdue have risen to over 10%, a percentage not witnessed since 2012. All of this showcases the challenging circumstances many American credit card holders, especially Gen Zers, find themselves in.
Gen Zers Are Falling Behind
Speaking on the rising delinquencies, Ted Rossman, senior industry analyst at Bankrate.com, said, “It is worrisome that so many Gen Zers are falling behind.”
He continued, ”We’re seeing more people financing daily essentials such as groceries and gas, and this can be a tough cycle to break.”
NY Fed Discovers a Correlation
The concerns of Rossman were further backed up by Gregory Daco, chief economist at EY, who said, “The rise in severe delinquencies — those over 90 days overdue — is a cause for concern.”
Experts from the NY Fed believe they found a correlation between maxing out credit cards and falling behind on payments. According to their research, Amercians who use less than 20% of their credit cards maximum limit generally don’t fall behind on their bills.
Delinquency on the Rise in the US
In comparison, delinquency is far more common for those who often spend more than 60% of their credit limit. According to the NY Fed researchers, this trend is “especially remarkable” for Amercians who max out their credit cards.
According to their results, over 33% of Americans who maxed out their credit cards have gone delinquent in the past 12 months.
Consequences of Maxing Out Credit Card
“While most commentators discuss a soft landing for the economy or the consumer,” Daco said, “the latest evidence on credit conditions points to multiple economies, multiple consumers, affected to different degrees by the higher cost and higher interest rate environment.”
Amercians who max out their credit cards can’t suffer consequences that negatively affect their overall credit score.
Reasons Gen Z Are Maxed Out
The NY Fed postulated that Gen Zers have maxed out their credit cards because they have lower credit limits. They suggest that most of the younger generation hasn’t had enough time to build their credit histories.
A typical Gen Zer’s average credit limit is around $4,500, millennials have around $16,000 max, and Gen X has $21,800. NY Fed researchers explained in a call that it’s a “typical age pattern” where younger generations use up more of their credit limit.
