AUSTIN (KXAN) — Texas’ youngest spenders are generating more credit card debt than older generations, according to new insight from the Federal Reserve Bank of Dallas released last week.
The report found borrowers born between 1997 and 2012 — known as Generation Z — are the most likely to max out available credit compared to older generations. Data on Texas’ Gen Z spenders found they had the highest share of their cards being highly utilized “at 75 percent of their credit limits or above” as of last March.
The report did note that, based on their age, younger borrowers might have lower credit limits compared to older generations, so true comparisons are difficult to capture. Instead, the report looked into comparing current Gen Z credit habits with prior generations’ borrowing tendencies.
Credit card ownership has grown among Gen Z borrowers compared to older generations. The Federal Reserve Bank of Dallas’ analysts found 60% of Gen Zers had a minimum of one credit card while in their early 20s compared to 54.5% of millennials and 57% of Gen X borrowers when they were also in that same age range.
With higher credit card ownership, that translated to a larger utilization rate for Gen Z compared to previous generations.
“Taking each cohort regardless of cardholder status, Gen Z has a slightly higher average share of highly utilized credit cards than both Millennials and Gen X by age 25,” the report noted. “When limiting the pool only to credit card holders, however, this reverses: Gen Z card holders have 28 percent of their cards highly utilized. For Millennials at that same age, 33 percent, on average, were highly utilized, and for Gen X, that share was 37 percent.”
The report also reviewed borrowers’ utilization habits in their early 20s and how that can predict future credit standings. Those with lower credit utilization in their early 20s were more likely to stay on top of their credit management and end up with higher average credit scores by the time they reached their 30s; by comparison, those with high credit card utilization in their early 20s were more on trend to have credit delinquency and lower average credit scores.
Noting the lower threshold of Gen Z borrowers with high utilizations, experts said Gen Z could be pivoting toward a healthier financial future compared to past generations.
“[N]oting the distinct early credit behavior of this cohort compared with previous generations and tracing the impacts in older ages suggests hope for Gen Z borrowers, albeit subject to potential macroeconomic shifts,” the report concluded. “Moreover, drawing links between credit behavior in young adulthood and long-term credit health can help future generations of borrowers get strong starts to their financial lives.”
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