Gen Z’s formative years were spent watching their parents struggle through the financial crisis. What they learned — surprisingly — was how to be savvier and more confident borrowers than millennials, according to a new study.
Half of credit-active Gen Zers between 18 and 24 have credit scores that are considered good or excellent, compared with only 39% of millennials at the same age in 2012, according to TransUnion, a credit reporting agency that analyzed over 26 million credit profiles for the study.
The findings underscore the economic advantages Gen Z has had over millennials that allows them to manage their debt obligations better. They didn’t enter adulthood during a once-in-a-lifetime recession; they’ve had access to better-paying jobs; and they carry lower amounts of student debt.
“The oldest set of Gen Z consumers came of age during an elongated economic expansion and relaxed underwriting environment, which allowed for a comparatively easier entrance into the credit market than their millennial counterparts,” said Matt Komos, vice president of U.S. research and consulting for TransUnion.
Gen Z gets credit ‘with greater ease’
In the first years out of the recession, lenders hesitated giving out credit, hurting millennials at the time. But lenders have become more willing to extend credit during better economic times.
“Gen Z has been able to access credit cards and auto loans with greater ease,” Komos said. A larger share of Gen Zers have a car loan (23% vs. 16%) and credit card (41% vs. 34%) versus millennials at the same age.
Even Gen Zers with spotty credit histories have been able to access credit more readily than millennials did in 2012. For instance, 23% of subprime Gen Zers have a credit card, nearly double that (12%) for subprime millennials at the same age, TransUnion found.
So far, most Gen Zers with credit cards are using 30% or less of their available credit, which indicates responsibility and restraint, Komos said.
“We're not seeing anything that would indicate that they're kind of out of line with what you might expect for early consumers in the market,” Komos said.
Gen Z and student loans
One area where Gen Z is not borrowing as much as millennials is student loans. That’s because this up-and-coming generation is instead reaping the rewards of a strong labor market and forgoing higher education — at least for the meantime.
When unemployment goes up, Americans often flock to the classroom because finding a job is too difficult, Komos said. On the flip side, when the economy is experiencing low unemployment, working-age adults will skip post-secondary education and go straight into the working world because jobs are plentiful.
As a result, more millennials (44%) had a student loan than Gen Z (37%), the TransUnion study found.
“We think that [Gen Z] is taking out student loans at a lower rate, but also think that some of the spikes on the millennial side is due to the recession,” Komos said. “So you kind of have both dynamics at play and that’s causing that kind of divergence.”