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Credit Card Use Among Gen Z & Millennials in Times of Economic Uncertainty

Boaz Gam

Boaz Gam


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7 min
Article content
  1. Factors Causing Economic Distress for Young Consumers in 2023
  2. How Are Millennials & Gen Z Dealing with the Current Financial Situation?
  3. Credit Card Use Among Younger Generations
  4. The Potential Consequences of Increased Credit Card Use
  5. Bottom Line: How Is the Credit Card Use Rate Expected to Change?

Rising Credit Card Use Among Younger Generations Explained

In the current economic climate, the financial stability of many individuals and families has been challenged. This is especially true for younger consumers, who are facing unique financial challenges in the midst of an unstable job market and rising debt.

In this context, credit card use has become an increasingly important tool for many young people, both as a means of financial support and as a way to build credit. In this article, we will explore how much the period of economic turbulence is influencing the credit card use of Gen Z and Millennials and explain what its potential consequences could be.

Factors Causing Economic Distress for Young Consumers in 2023

Rising Credit Card Use Among Younger Generations Explained

In times of economic downturn, it is often the youngest generations that take the biggest hit due to the fact that they are still in the process of achieving financial independence or stability. While this is often due to limited work experience, higher unemployment rates, and lower job security, every period of financial turbulence has its own unique challenges.

Here are some of the key factors driving economic distress for Millennials and Gen Z in 2023:

  • Recovery from the global pandemic. The COVID-19 pandemic has had far-reaching impacts on economies worldwide, and its effects continue to be felt as societies strive to bounce back and rebuild.
  • Inflation. The sustained increase in the general price level of goods and services over time has played a decisive role in reducing the younger generations’ purchasing power, devaluing their savings, and forcing banks to set higher interest rates.
  • Rising debt levels. Many young individuals face significant student loan debt, which can be a burden on their finances. Additionally, high housing costs and other expenses contribute to increasing levels of debt among Gen Z and Millennials.
  • Job market adjustments. While rapid technological advancements and automation are generally considered positive tendencies, they can lead to job displacement and changes in employment patterns. This can create uncertainty for younger workers, who may need to adapt to new skill requirements or face competition from emerging technologies.
  • Income inequality. Uneven income distribution has been a growing concern in many societies. As a result, younger generations often face challenges in achieving financial stability due to lower starting salaries, limited job opportunities, and higher living costs.

Recognizing such struggles faced by younger individuals during economic crises is crucial for understanding their resulting consumer behavior and investment decisions.

How Are Millennials & Gen Z Dealing with the Current Financial Situation?

Rising Credit Card Use Among Younger Generations Explained

In light of the economic challenges they face, Millennials and Gen Z have been adapting their financial behaviors in a number of ways, namely:

  • Increased credit card usage. Credit cards provide a flexible source of funds that can be used for essential expenses, such as groceries, utilities, and medical bills, when income is limited or unstable. Due to this, many Millennials and Gen Z individuals have been relying on credit cards as a means of financial support during these uncertain times.
  • Diving into budgeting and financial literacy. Economic uncertainty has prompted many Millennials and Gen Zers to become more proactive in managing their budgets, tracking expenses, and seeking out educational resources to improve their financial knowledge.
  • Seeking additional income sources. Many young consumers are actively seeking additional income sources. This includes taking on part-time jobs, freelance work, or exploring entrepreneurial ventures. By diversifying their income streams, Millennials and Gen Z hope to mitigate the impact of economic turbulence and reduce their reliance on credit cards.
  • Exploring alternative credit options. In response to rising debt levels and the challenges of obtaining traditional credit, younger consumers are also exploring alternative options. This includes considering fintech solutions, such as digital lending platforms and BNPL services, which may offer more accessible and flexible credit terms.

While some of these practices, like investing in financial literacy and diversifying income sources, are likely to have a positive effect on consumers’ budgets, the situation with traditional and alternative credit services is not that straightforward - read on to learn more about it.

Credit Card Use Among Younger Generations

Rising Credit Card Use Among Younger Generations Explained

The latest research conducted among 2,203 US consumers between February 27 and March 1, 2023, has demonstrated that the role of credit cards in modern society has evolved dramatically in recent times. Here are some key findings that demonstrate their significance for younger consumers nowadays:

  • Approximately 77% of adults in the United States possess at least one credit card, which emphasizes their widespread usage as a financial tool.
  • Among consumers with bank-issued credit cards, 55% pay their balances in full each month, while 45% frequently carry revolving balances.
  • During a period of heightened inflation, 33% of cardholders have increased their dependence on credit cards in the past six months. Conversely, only 15% have decreased their reliance. This trend is primarily driven by younger generations and high-spending revolvers who consistently carry balances of 40% or more of their expenses on credit cards.
  • Consumers nowadays tend to prioritize credit cards that offer rewards and financial management features. When choosing a card, 31% of cardholders consider reward and cash-back programs, while 13% value immediate fraud detection alerts. Individuals without credit cards are particularly drawn to options that provide flexible spending limits.

Overall, inflation plays a significant role in determining consumers’ reliance on credit cards. Those who feel a greater impact from it, typically younger individuals, are more likely to use credit cards for a significant portion of their spending, increasing the likelihood of carrying revolving balances.

The Potential Consequences of Increased Credit Card Use

Rising Credit Card Use Among Younger Generations Explained

While increased credit card use can provide short-term financial support and help build a credit history, it also comes with potential consequences, especially if not managed responsibly. Here are some potential consequences that we are likely to see should the increased credit card use among Millennials and Gen Z persist:

  • Debt accumulation. One of the biggest risks of increased credit card use is the accumulation of debt. If young consumers rely heavily on credit cards without a solid plan to repay their balances in full each month, they may end up carrying revolving balances and accumulating high-interest debt. This can lead to financial strain and long-term consequences, including interest payments that can become overwhelming and hinder their ability to save or invest.
  • Credit score impact. Credit card use, particularly when managed responsibly, can help build a positive credit history. However, if Millennials and Gen Z individuals exceed their credit limits or are unable to make timely payments, their credit scores will be impacted negatively.
  • Financial dependency. Increased reliance on credit cards can create a financial dependency cycle, where young consumers become dependent on credit to meet their day-to-day expenses. This reliance can hinder their ability to develop healthy financial habits and make it harder for them to transition to a financially independent lifestyle in the long run.
  • Impaired financial goals. Excessive credit card use can impede Millennials and Gen Z from achieving their financial goals. High levels of debt and interest payments can limit their ability to save for emergencies, invest for the future, or make significant purchases, such as buying a home or starting a business.
What’s more, similarly to increased credit card use, the rising utilization of alternative credit solutions by Millennials and Gen Z also carries potential consequences, such as limited credit-building opportunities, higher interest rates and fees, potential for overborrowing, and room for predatory lending practices’ growth.

Thus, it is essential for modern-day consumers to focus on developing healthy budgeting habits and navigate their resources toward saving and investing to build reliable financial safety pillows and ensure their resilience in the face of economic instability.

Bottom Line: How Is the Credit Card Use Rate Expected to Change?

Rising Credit Card Use Among Younger Generations Explained

The economic landscape is ever-changing, which is why it is challenging to make forecasts regarding future credit card use dynamics. However, what can be said with confidence is that the trajectory of credit card use among younger generations is likely to depend on the following factors:

  • Economic conditions. Economic factors, such as job prospects, income levels, and access to credit, can significantly impact credit card usage among younger generations. Should the situation improve, individuals may have more disposable income, which will make them less inclined to rely on credit cards as heavily as they do nowadays.
  • Technological advancements. As technology continues to evolve, new payment methods and financial tools may emerge. Gen Z, in particular, is known for embracing digital innovation, and their preferences for payment methods may impact credit card usage rates.
  • Regulatory and industry changes. Adjustments in regulations or industry practices, such as interest rate limits, credit card rewards programs, or lending standards, could influence Millennials’ and Gen Z’s decisions regarding credit card use.

All in all, younger generations tend to be adaptable and flexible, which means they have plenty of potential to effectively overcome periods of economic distress.

Thus, with such factors as the global economy setting the course toward recovery, rapid technological process, and increasing financial literacy, Gen Zers and Millennials have grounds to hope that their reliance on credit cards will be reduced in the foreseeable future.

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