65% of Americans are increasing their credit card usage due to rising costs. (iStock)
Inflation has been rising steadily in recent years. Consumer Price Index The headline inflation measure, the dollar inflation rate, rose again in March, increasing 0.4% across all categories. The rise in inflation has prompted consumers to turn to credit cards more for everyday spending, Varo Money’s investigation reveals.
About 65% of survey respondents said rising prices for basic necessities like food and utilities were the reason they were using their credit cards more frequently, while an additional 55% said the rising cost of living was the reason they were relying on credit cards more.
Gen Z has seen the biggest increase in credit card usage, with nearly 35% of Gen Zers reporting they are using their credit cards more frequently, compared to 23% of Millennials, 17% of Gen Xers and 21% of Baby Boomers. According to Baro, financial debt and struggles vary by gender, with more women (36%) saying they are stressed about their financial situation than men (23%).
The majority of respondents want to pay off debt and plan to use the money from their tax refund to improve their financial situation: 42% of survey respondents plan to use their tax refund to pay off debt, and 34% plan to save it for an emergency.
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With the cost of living rising, many personal loan borrowers rely on loans to meet their day-to-day expenses.
Gen Z has more debt than any other generation
Younger generations are taking on more debt overall, and not just on credit cards: Gen Z is using credit cards more frequently than millennials did in their young adulthood. TransUnion research report.
COVID-19 has had a disproportionate impact on Gen Z consumers, with 75% reporting that the pandemic has negatively affected their finances. Many Gen Zers entered their early 20s during the pandemic. A tough job market, rising inflation, and the normal struggles of early adulthood are all contributing to financial difficulties for Gen Z.
“Generation Z consumers have been significantly impacted financially by the pandemic and its aftermath, even more so than the challenges millennials faced as a result of the Global Financial Crisis,” said Michelle Ranelli, vice president and head of U.S. research and consulting at TransUnion. “This is likely playing a key role in shifting priorities for Gen Z consumers, both in the types of loans they seek and how they access them once they receive them.”
Gen Z has a much higher rate of credit card ownership than millennials: About 84% of Gen Z consumers have at least one credit card, up from 61% of millennials who had at least one credit card 10 years ago.
“In today’s economic climate, where the cost of living is significantly higher than it was a decade ago, it’s not surprising that younger consumers are increasingly turning to credit products to meet their financial needs,” said Jason Lakey, executive vice president and head of financial services at TransUnion. [Gen Z] They are a relatively young and new demographic to the workforce and therefore more likely to demand lower salaries early in their careers.”
“As long as inflation remains high and commodity prices remain high, balances on products like credit cards, personal loans and auto loans are likely to continue to rise,” Lakey continued.
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More than half of Gen Z is living paycheck to paycheck
Inflation and rising prices are the main culprits as more and more Americans find themselves running out of money before payday, and Gen Z is struggling the most since they typically work in lower-wage jobs.
About 59% of Gen Z consumers live paycheck to paycheck. According to a survey by PymntsSlightly fewer Baby Boomers and seniors, at 51%, are living a life where they run out of money before payday.
Gen Z believes they are struggling financially because they are spending too much money on unnecessary things, with 7.5% of Gen Z citing job instability as the main reason they are struggling financially.
Younger generations may spend more on non-essentials than other generations, but they’re unwilling to compromise on housing costs: While Baby Boomers spend more than 60% of their income on housing and other regular expenses, Gen Zers, on average, spend just 47% of their income on these same expenses.
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