Inflation Takes a Toll on Gen Z

"Inflation poses significant challenges for Generation Z, impacting their financial stability and prospects. As prices rise and cost-of-living pressures mount, Gen Z faces unique economic hurdles, requiring adaptation and strategic planning to mitigate the effects of inflation on their livelihoods."

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New YorkCNN — Gen Z is in the financial trenches.

A recent study by TransUnion, a credit reporting agency, reveals that individuals in their early twenties are facing lower earnings, higher debt burdens, and increased delinquency rates compared to Millennials at the same age. The study focuses on the credit behavior of 22 to 24-year-old Gen Zers, while Millennials in that age bracket in 2013 were surveyed about their credit habits during that period. Gen Zers, born between 1995 and 2012, and Millennials, born between 1980 and 1994, are distinguished in the analysis. Both generations have encountered economic challenges early in their careers: Gen Z faced the Covid-19 pandemic, while Millennials dealt with the global financial crisis. However, today's early 20-somethings face an additional hurdle: persistent inflation, which has driven up prices across various sectors, from fuel to groceries. Moreover, soaring interest rates, now at a 23-year high, have further elevated borrowing costs for auto loans, student loans, and mortgages.

This issue isn't solely confined to early-career consumers; the entire US credit economy has witnessed elevated debt levels and delinquencies across various credit products. A separate report from TransUnion revealed that Americans' collective credit card balance exceeded $1 trillion for the first time in 2023. Given that Gen Zers are in the nascent stages of their credit journeys, it's crucial for them to cultivate healthy financial habits now to pave the way for their future, according to experts. Before the Bell recently interviewed Charlie Wise, head of global research and consulting at TransUnion, to delve into Gen Zers' financial circumstances and potential strategies for improvement. The interview has been condensed for brevity and clarity.

"Why are we observing that Gen Z is relying more on credit compared to their Millennial counterparts a decade ago?"

"When considering the rising cost of living, many of the expenses that significantly impact Gen Z's budget have surged. Rent, for instance, has seen double-digit increases over recent years, alongside escalating prices for essentials like food, dining out, gasoline, and transportation."

The majority of Gen Z individuals are not homeowners; they either rent or reside with family or friends. However, for those who rent, they face an added financial strain that homeowners who secured their homes before 2022 haven't experienced. While homeowners' mortgage payments typically remain stable, rent costs can fluctuate. This variability in rent prices has significantly contributed to the financial challenges encountered by Gen Z consumers.

For Gen Zers grappling with financial difficulties, it's essential to adopt prudent financial practices. While not everyone may have the means to pay off their credit card balances in full each month, continuously relying on credit cards and only making minimum payments can perpetuate debt accumulation. Paying off credit card balances solely with minimum payments can prolong the debt repayment process, especially if card usage persists.

Understanding one's financial limitations and spending within those constraints is crucial. For individuals burdened by high levels of debt, exploring options like refinancing credit card debt with lower-interest forms of borrowing, such as personal loans, can be beneficial. Personal loans necessitate substantial monthly payments, facilitating debt reduction over time. By consolidating credit card debt onto a more affordable platform, individuals can gradually eliminate their debt burden. However, it's imperative not to use personal loans to pay off credit card debt only to accumulate further credit card charges afterward.

It's reasonable to express concern about Gen Z's financial well-being, but the current situation leans more toward a "wait-and-see" approach rather than a full-blown crisis.

Indeed, the average credit card balances per consumer, even when adjusted for inflation, are 26% higher than they were for Millennials a decade ago. This suggests that Gen Z has increasingly relied on debt. However, despite the uptick in delinquency rates, there's no immediate cause for alarm.

Gen Z individuals may experience significant and rapid salary increases as they progress in their careers, transitioning from entry-level positions to higher-paying roles through promotions or job changes.

Nonetheless, it's crucial to ensure prudent financial management by borrowing and spending within one's means. This entails maintaining a balance between borrowing and spending habits to avoid excessive debt accumulation.

Britain emerges from recession in a 'fragile' recovery leading up to the election.

The United Kingdom has emerged from a brief and shallow recession, providing Prime Minister Rishi Sunak with a much-needed boost ahead of an anticipated election later this year, as reported by my colleagues Hanna Ziady and Anna Cooban.

Data from the Office for National Statistics (ONS) released on Friday showed that gross domestic product (GDP) expanded by 0.6% in the first quarter of the year compared to the previous quarter. This growth follows contractions of 0.3% in the fourth quarter and 0.1% in the third quarter of last year. A recession is typically defined as two consecutive quarters of economic decline.

The growth in the first quarter of this year was primarily driven by "widespread growth" in the dominant service sector, which saw output increase by 0.7% during the quarter after experiencing a downturn late last year, according to the ONS.

The Bank of England's latest projections, published on Thursday, anticipate UK GDP to grow by 0.5% this year, doubling the pace forecasted in February. In comparison, GDP only increased by a modest 0.1% last year.

There are encouraging signs of economic recovery beyond GDP growth. In April, a survey of purchasing managers conducted by S&P Global revealed that combined output in manufacturing and services recorded the most substantial increase in nearly a year. Once again, service firms were the main drivers of this expansion.

However, despite these positive developments, the UK economy is still lagging behind its counterparts.

Source: CNN