Credit card usage is up as inflation continues to rise
Gen Zers are dealing with the most amount of debt
Sixty-five percent of Americans have increased their credit card usage due to rising costs. (iStock)
Inflation has steadily been rising in recent years. The Consumer Price Index — a major measure of inflation — rose again in March, by 0.4% on all items. Rising inflation is causing consumers to rely more heavily on credit cards for everyday expenses, a Varo Money survey found.
Close to 65% of respondents to the survey blame their added credit card usage on inflated prices on essentials like groceries and utilities. An additional 55% cite the increased cost of living as the reason behind their reliance on credit cards.
Gen Z has increased their credit card usage the most. About 35% of Gen Zers reported using their credit cards more frequently, compared to 23% of millennials, 17% of Gen X and 21% of baby boomers. Financial debts and struggles differ along gender lines, Varo found. More women (36%) reported being stressed about their financial situation compared to men (23%).
Most respondents want to address their debt, and plan to use money they get back as tax refunds to better their financial situation. Forty-two percent of survey respondents plan to pay off debts with tax refund money, and 34% plan to save for emergencies.
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Gen Zers take on more debt than other generations
The younger generation is taking on more debt overall, not just credit card debt. Zoomers use credit more frequently than millennials did in young adulthood, a TransUnion study reported.
COVID-19 had a profound effect on Gen Z consumers, with 75% reporting that the pandemic negatively impacted their finances. During the pandemic, many Gen Zers entered their early 20s. A tight job market, rising inflation and the usual struggles of early adulthood have all resulted in financial struggles for Gen Z.
"Gen Z consumers have seen their finances significantly impacted by the pandemic and its aftermath, even more so than the challenges faced by Millennials as a result of the Global Financial Crisis," said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. "This likely has played a key role in the shifting priorities of Gen Z consumers, both in the types of credit they are seeking, and the way they are using that credit once they gain access to it."
Gen Zers have credit cards at much higher rates than millennials. Nearly 84% of Gen Z consumers have a least one credit card, higher than the 61% of millennials who had at least one card 10 years ago.
"It’s no surprise that in this economic climate, one in which the cost of living is significantly higher relative to a decade ago, younger consumers are increasingly turning to credit products to bridge their financial needs," Jason Laky, executive vice president and head of financial services at TransUnion said. "This [Gen Z] is a demographic that is younger and newer to the workforce and accordingly, is likely commanding a lower salary at an earlier point in their career."
"As long as inflation remains elevated and the cost of goods remains so as well, balances across products such as credit cards, personal loans, and auto are likely to continue to grow," Laky continued.
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More than half of Gen Z lives paycheck-to-paycheck
Largely due to inflation and rising costs, more Americans are living paycheck-to-paycheck. Members of Gen Z struggle most, since they typically have lower-paying jobs.
Nearly 59% of Gen Z consumers live paycheck-to-paycheck, a Pymnts study found. A slightly lower 51% of baby boomers and seniors live paycheck-to-paycheck.
Gen Z chalks up their financial strains to spending too much on nonessentials. A smaller 7.5% of Zoomers cite unstable job situations as the number one reason they struggle financially.
The younger generation may spend more on nonessentials than other generations, but they’re unwilling to compromise on housing costs. Baby Boomers allot over 60% of their income to housing and other regular bills, but Gen Z allocates just 47% of their income, on average, to these same expenses.
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