Gen Z Has a Serious Debt Problem

Gen Z, the youngest generation in the workforce, are increasingly unable to repay their debt, a survey has found.

The generation, which comprises people born between the mid-1990s and the early 2010s, was the cohort most behind on their debt payments (for more than 90 days) and they are more delinquent on their debt bills than they’ve been in three years, according to the New York Fed.

Economic experts say this surge in debt delinquency is no coincidence. Gen Z-ers are facing unique challenges, according to Jason Berube, the founder and CEO of Cornerstone Wealth Consulting Services.

Many are burdened with student loans due to the rising costs of higher education, and they’ve faced economic instability as they start their careers and often struggle to find secure and well-paying jobs.

Gen Z-ers who are now adults have faced severe economic volatility, especially in the aftermath of the COVID-19 pandemic, shifting the financial realities that earlier generations met before them.

“Like Millennials before them, Gen Z has had the deck stacked against them,” attorney Michael Lux, the founder of The Student Loan Sherpa, told Newsweek. “A college degree remains essential for most jobs, yet tuition increases continue to outpace wage growth. Throw in years of inflation and rent price growth, and it becomes challenging to stay above water.”

And that’s not to even mention Gen Z’s entrance into the housing market, which has been ripe with anxiety over seemingly impossible-to-afford home and rent prices.

“Skyrocketing housing prices and stagnant wages make it hard for Gen Z to afford rent or save for a down payment,” Berube told Newsweek.

Gen Z feels these pressures more than most, according to a United Way of the National Capital Area study. The study of 1,000 Americans across each generational cohort found that 69 percent of Gen Z-ers are concerned primarily with inflation or the cost of living. Around 64 percent are concerned about affordable housing.

This is in stark contrast to other generations, who listed their larger concerns as taxes, government spending, and immigration policies.

Around 29 percent of Gen Z live in poverty, the study found. Even if not technically at the federal poverty level, the report found 40 percent of Gen Z adults fell into the ‘asset limited, income constrained, employed’ population, which represents everyone who earns more than the poverty level but not enough to afford the basics where they live.

According to Keisha Blair, an economist and the founder of the Institute on Holistic Wealth, the New York Fed report sounds the alarm on what many in the younger generation are up against.

“Many in this generation pursue higher education with the promise of better career opportunities but find themselves weighed down by substantial debt upon graduation,” Blair told Newsweek.

Gen Z has several things working against them besides just the state of the economy, housing market, and education system they were born into. They are dealing with a never-before-seen market that relies on instant, digital payments and may fuel impulsive spending.

“Unlike previous generations, Gen Z has grown up in the digital age, where the ease of online transactions and digital payments can lead to impulsive spending,” Blair said. “The prevalence of social media also exposes them to a world of influencers and lifestyle expectations, contributing to a culture of immediate gratification and increased consumerism.”

Some believe part of Gen Z’s problem may lie in the way they were raised as well.

“The generation has had more support from their parents than previous generations,” Tandy Caraway, a college strategist at CollegeMode Academy, told Newsweek. “They struggle with money management skills as their parents managed everything for them when they were at home.”

Still, Gen Z’s rising delinquency could also reflect that they are just entering adulthood, and that’s the typical age range of those struggling to stay on top of their debt payments, Tobin Van Ostern, the co-founder of student loan borrowing platform Savi, said.

“Younger borrowers have less savings, and that smaller cash cushion makes it harder to handle changes in their financial situation,” Van Ostern told Newsweek. “Unfortunately, things will get a lot worse before they get better.”

How Will Gen Z Be Affected Later On?

Gen Z’s soaring debt will likely have significant implications as the generation looks to build wealth and buy homes.

“Accumulating debt at a young age can hinder their ability to build wealth and achieve financial stability later in life,” Berube said. “Late payments and defaults can damage their credit scores, affecting their ability to secure loans for future needs like cars or homes.”

If Gen Z is forced to delay financial milestones like buying a home or retirement, the middle class is only likely to continue to shrink.

Lux believes the long-term outlook is troubling for many, especially as student loan payments resume.

“With pensions largely extinct and home prices unaffordable in many areas, traditional methods of wealth-building may be out of reach,” Lux said. “It’s easy to see the student loan and credit card troubles of today becoming retirement issues of the future.”