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Generation Z embraces credit, rejects debt

Kelly Dilworth

Lenders who have been spooked by millennials’ tepid embrace of credit can maybe rest a bit easier: It looks as if members of Generation Z – the demographic group directly following the millennials – are more open to credit cards than their credit-shy older siblings. And Gen Z members also appear to be using plastic responsibly.

But unlike older credit card holders who often carry over at least a few thousand dollars or more from month-to-month, most members of Generation Z keep their debt in check by paying off their balances in full.

According to an Equifax study released Aug. 24, almost 70 percent of college students between the ages of 18 and 24 own at least one credit card.

That’s on par with the general population: According to a Federal Reserve credit card ownership statistics from 2014, roughly 72 percent of consumers of all ages own one or more cards. But instead of using credit to finance purchases they can’t afford to pay off in full, the average Gen Z cardholder uses credit cards more like an interest-free payment tool: a convenient way to make purchases, but without the debt.

Seventy-two percent of Generation Z cardholders say they avoid paying interest by paying off their balances in full each month, and 18 percent of college-age cardholders say their parents pay it off. Only 10 percent say they typically carry a balance.

Furthermore, 59 percent of cardholders carry a small enough balance that they expect to pay off their cards within a year. Thirty-nine percent say they’ll be able to knock it out in as little as six months.

“This generation, despite being bombarded by information from a variety of sources, is developing credit-smart behavior early on,” Equifax’s Melanie Wing said in a news release.

Most students who carry a card also appear to use their credit cards relatively frequently. For example, the Equifax survey found that 40 percent of students regularly use their cards for small purchases, while 30 percent say they use their cards for nearly everything they buy. Only 16 percent of Gen Z cardholders said their cards were just for emergencies.

Generation Z: the thrifty generation
In addition to being conservative with credit, a June 2015 Ernst & Young study found that members of Generation Z are relatively thrifty.

“They look beyond just what the price says it is to what you’re going to get for it,” Ernest & Young’s Marcie Merriman said in an interview with Business Insider. “Are you going to get free delivery? What other services come along with it?”

Members of Generation Z also tend to be focused more heavily on buying experiences instead of things, said Merriman – in part because they came of age during the recession and learned “products are no longer the cool thing.”

“It was cool to save a dollar … and save money and get something for really cheap,” said Merriman. “Through that whole process they’ve learned the value’s not in the product or the thing, it’s in the experience.”

Recession’s impact on Gen Z
Analysts have speculated that members of Generation Z are also more conscious of money and better stewards of it because they experienced the recession at a formative age.

Unlike many millennials who were already in college or in the workforce when the recession hit, members of Generation Z were relatively young and still living with their parents. They may have seen parents or other family members lose jobs or lose their homes or they may simply have received fewer gadgets and toys than they would have otherwise.

If members of Generation Z did learn lessons from the recession, that could bode well for their long-term finances. With firsthand knowledge of what can happen when you get overstretched with debt, they may be less tempted to use their cards on purchases they can’t afford.

See related: Nearly half of Gen Z college students aren’t checking their credit reports

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