How Generation Z might turn the tide on consumer debt

Recently, Ladders published a bipartisan chronicle of US debt beginning with a productive row in Jefferson’s dining hall back in 1790, and ending with a grim projection from Federal Reserve Chairman Jerome Powell in November 2019:

“The federal budget is on an unsustainable path, with high and rising debt. Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”

Debt is officially outpacing our economy.

The problem wasn’t always suspected to be a perpetual one; it’s true but difficult to believe, I know.  If you’re like me, the instant you took an interest in civics you might have also descried terms revolving around debt and debate prose to be inextricable; so much so that proposed solutions are rated by how they’re articulated much more faithfully than how they’re executed.

Commentary only seriously favored an optimistic prognosis as far as debt is concerned three times in our nation’s history. First after the compromise conceived by Jefferson, Hamilton and Madison,  again during Jackson’s second term when he successfully freed America of all of its debt by selling off government lands in the west and limiting infrastructure, and for the final time just before the turn of the century following tax hikes instated by George H.W. Bush and Bill Clinton.  The War of 1812 wounded the first forecast, the Panic of 1837 revealed the second to unfold more like a genie’s wish, and the great recession of 2001 made quick work of the last.

Today, the national debt sits restlessly at $22 trillion, while consumer debt is well on its way to surpassing $13 trillion.  Not unlike Jackson’s initial real estate victory, the downfall of personal and consumer debt began with a series of good omens. By the early 20th century, the middle class had expanded considerably parallel to wage increases. In response to these developments, revolving credit was born which meant borrowers didn’t have to pay off their balances at the end of the month, they could just accumulate what they owed for a fee.  Although many spectators blame financial illiteracy among younger generations as the primary culprit of the prolonged ballooning, Gen Zers seem to be evidencing a welcomed return to fiscal prudence.

“Gen Z may be just getting into their credit-using years, but they are already showing significant differences in their credit profiles from the Millennials and GenXers that preceded them,” experts over at Lending Point explained.

“We recently analyzed just over 5 million NearPrime loan applications received between July 2018 and July 2019 to find that Gen Z, or those born after 1996, have an average FICO score that’s higher than both Millennials and Gen X. This is especially interesting when you consider that how long you’ve had credit is a key factor when it comes to credit scoring. And even with a duration of credit use playing a role in FICO scores, Gen Z is off to a strong start in building their credit profile.”


The chief reason Millennials and Generation Xers apply for personal loans is in service of debt consolidation.

Creditors are a tricky sort to negotiate with because they don’t have your best interest in mind, they have a profit in mind. There’s nothing wrong with that, but you have to become fluent in the language of fine print if you hope to make your relationship with them profitable for both parties.

If you’re not really listening, debt consolidation sounds a lot like debt elimination; if you’re not really listening lower interest rates sound like a promise, if you’re not really listening debt consolidation is indistinguishable from debt relief.

When you do away with all of the flash and glimmer of whatever pitch some third rate company tried to proselytize to you, debt consolidation is nothing more than an augmented loan with extended repayment terms. It combines all of your individual unsecured debts into one monthly bill but, in truth, just sees most applicants paying off creditors a lot longer than they would have hitherto signing their respective agreement.

Only 58% of Gen Zers occasion debt consolidation as a reason to take out a loan compared to over 74% of other generations that do so. On balance, Generation Z take out loans to cover major purchases, auto expenses, and healthcare.  This generation is also borrowing in lesser amounts than Millennials and Generation X.

According to a recent LendingPoint’s report, Gen Z has an average loan amount of $8,462, which is lower than all other generations who take out a median amount between $11,000 – $11,500. This newfangled shrewdness is animated by a psychological reckoning and sins of the father. Gen Zers more than any other generation have benefited from the age of agency and accountability.

Eighty-four percent of members of this demographic surveyed said that taking charge of their finances made them feel empowered, and 74% of members belonging to this same group said they think long and hard before committing to a large expense.  Lending point adds,

“It seems Gen Z doesn’t want to find themselves in the position their parents were put in during the Great Recession, and they prioritize financial stability and consider purchasing decisions. This financially conservative mindset may be the driver behind Gen Zers’ higher credit scores than both Gen X and Millennials, despite their growing interest in debt.”