Credit Card Debt Pressures Millennials, Gen Z Paycheck-To-Paycheck

(CTN News) – As young consumers live paycheck-to-paycheck, credit card debt is more difficult to manage. Approximately one in five Americans with a credit file between 18 and 24 have debt in collections, according to the Urban Institute.

Also, young people are particularly vulnerable to delinquencies on credit cards, auto loans, and retail loans, according to the Institute.

Only 3.5 percent of Gen X borrowers and 1.8 percent of boomers are behind on their credit card payments. This is compared with 5 percent of millennials and 4.5 percent of Gen Z.

PYMNTS’ own research suggests that the debt load has accumulated in recent weeks, especially for paycheck-to-paycheck consumers.

Nearly 60 percent of paycheck-to-paycheck consumers used credit or financing to pay for their Black Friday purchases during the most recent holiday shopping data.

A total of 51 percent of millennials reported using credit, personal loans, or buy now, pay later (BNPL) options to finance their purchases, more than any other cohort.

Younger consumers live paycheck-to-paycheck

We found that 70 percent of millennials and 65 percent of Gen Z consumers live paycheck to paycheck. The cash cushion for savings and debt repayment isn’t all that big.

Paycheck-to-paycheck consumers who have trouble paying their monthly bills reported the lowest average savings of just $1,158.

A millennial living paycheck to paycheck reports having an average savings amount of $3,731 in the bank.

According to Bankrate data, average interest rates charged on credit card debt have reached an all-time high of 19 percent following interest rate hikes.

The Across-the-Board Warning Sign 

The St. Louis Federal Reserve revealed that the delinquency rate on credit cards for all banks at the end of the third quarter was 2.1 percent.

This was up from 1.9 percent in the second quarter and from 1.6 percent a year before. There are some warning signs in the economy at large.

In total, credit card balances rose by $38 billion, a 15 percent year-over-year increase and the largest increase in 20 years.

Paycheck-to-paycheck consumers are three times more likely to have credit card debt and carry higher monthly balances.

A significant percentage of consumers carry monthly debt due to the fact that 83 percent live paycheck to paycheck.

In a mid-year Digital First Banking Tracker conducted with PYMNTS and NCR, 54 percent of teens feel unprepared for the future financially.

As younger consumers are more comfortable with digital channels, banks and FinTechs have the opportunity to help boost financial literacy and wellness.

For example, Intuit is buying FinTech SeedFi to assist legacy lenders launch new consumer lending products. In addition, as we discussed over the summer, younger consumers have a lot of opportunity to save.

Atomic Investment has launched an investing API to enable help FinTechs and banks integrate investing into their products and services, including features for millennial investors.

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