Is Gen Z's Surging Debt a Cause for Alarm?

Is Gen Z’s Surging Debt a Cause for Alarm?

A recent survey unveils a substantial increase in Gen Z’s debt, prompting a deeper examination into the causes, implications, and long-term outlook of this trend.

How Rapidly is Gen Z’s Debt Growing?

Gen Z (individuals aged 18-26) has seen a 99% increase in their debt, excluding mortgages, over the last two years, a rate that surpasses any other generation, according to a study by LendingTree. Meanwhile, millennials’ debt grew by 21%, while Gen X and baby boomers reduced their debt by 3% and 26% respectively. When including mortgages, Gen Z’s total debt skyrocketed by 179%, averaging a $10,797 increase per individual, yet remains the lowest dollar amount of debt among all generations.

Can This Increase in Debt be Viewed Positively?

Matt Schulz, LendingTree’s chief credit analyst, emphasizes that rising debt isn’t necessarily indicative of financial instability; it can also represent growing consumer confidence. He attributes part of Gen Z’s rising debt to their age and corresponding increase in credit accessibility and income levels. The belief in their capacity to manage increased debt responsibly is another contributing factor.

Who Bears the Heaviest Debt Burden?

Although Gen Z’s debt is growing at an unprecedented rate, Gen X carries the largest average debt balance, standing at $167,493. Schulz explains that Gen X’s higher credit scores and income levels, compared to retired baby boomers and younger generations, facilitate their access to larger loans and credit lines. A significant portion of this debt is tied to an average mortgage balance of $121,712.

Have Baby Boomers Managed to Reduce Their Debt?

Unique among their generational counterparts, baby boomers have successfully decreased their overall debts by $21,870 or 15.5%, reversing the trend from a previous LendingTree study where they were the only generation increasing their debt.

What Constitutes the Debt for Different Generations?

  • Gen X: Primarily driven by mortgage balances and auto loans, which constitute 37% of their non-mortgage debt.
  • Gen Z: Although their overall debt is lower, 46% is attributed to auto loans.
  • Millennials: Student loans make up the lion’s share, representing 36% of their overall debt.

Gen Z experienced a substantial increase in personal loans (a $1,292 or 207% rise) and credit card balances (a $1,771 or 174% ascent) over the past two years.

Is the Debt Increase a Sign of Trouble or Growth for Gen Z?

The analysis suggests a nuanced perspective is essential. While the rapid escalation of debt is evident, contextual factors such as improved credit accessibility, higher incomes, and the generation’s confidence in their financial management capabilities paint a multifaceted picture. The ongoing monitoring of these trends will be crucial to understanding the broader economic and financial implications.

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