Gen Z's finances are already tanking, and we're not even in a recession yet

Gen Z's finances are already tanking, and we're not even in a recession yet
A foreclosure stays on your credit report for seven years.AntonioGuillem/Getty
  • Credit card debt is on the rise, and Gen Z is missing payments at an increasing rate.
  • If the US enters a recession, young Americans could be disproportionately impacted.

Young Americans are still spending as the holiday shopping season ramps up, but they're running out of money. With a recession potentially looming next year, it arguably couldn't come at a worse time.

After falling in the last few years as borrowers paid down their balances, US credit card debt rose $38 billion between July and September of this year, per the New York Fed. The 15% year-over-year increase was the largest in over 20 years.

For now, credit card debt remain below pre-pandemic levels, and to some degree, an uptick was to be expected as consumers emerged from lockdowns and contended with higher prices.

The "real test," however, New York Fed researchers wrote in a November blog post, is "whether these borrowers will be able to continue to make the payments on their credit cards." Signs point to Gen Z, in particular, is starting to feel the squeeze.

While overall delinquencies remain below pre-pandemic levels, the percent of credit card payments 90 days or more past due rose to 3.7% in the third quarter, up from 3.2% the year prior.


While all age groups saw upticks in missed payments, the biggest increase came from 18 to 29-year-olds, whose 90-plus day delinquency rate rose to over 6%, though still below the roughly 9% rate before the pandemic took hold.

It's not just credit card debt that young borrowers are struggling to make payments on either. Rising balances for auto loans also coincided with a spike in the auto delinquency rate.

"Is this simply a reversion to earlier levels," the researchers wrote of the overall rise in missed payments, "with forbearances ending and stimulus savings drying up, or is this a sign of trouble ahead?"

Gen Z could be running out of money and taking on more debt at the worst time as a recession looms

US consumer spending rose in September above expectations, and many corporations reported strong results in recent weeks. But even well-performing companies raised alarms about how much inflation is weighing on their customers.

During the height of the pandemic, households accumulated roughly $2.5 trillion in "excess savings" — the amount above what would have been saved if there was no pandemic — as stimulus checks rolled in and lockdowns gave Americans fewer opportunities to spend their money. Consequently, the personal savings rate rose to its highest level on record.


Today, however, inflation is causing Americans to spend more and save less, and as a result, the savings rate is near its lowest level since the Great Recession. The $2.5 trillion in excess savings had fallen to somewhere between $1.2 and $1.8 trillion entering the third quarter of this year, and economists estimate it will all be gone in less than a year.

As inflation takes its toll, it's leaving many young Americans worse off, and if the economy takes a turn for the worse, many young Americans could find themselves with depleted savings just as they are most in need of a financial cushion.

That's because young Americans are among the individuals hardest hit by economic downturns.

"For young adults, a recession can have much longer lasting consequences," Bureau of Labor Statistics economist Geoffrey Paul wrote in a 2019 blog post. "For example, young adults have more difficulty than usual entering the workforce or maintaining a job held at the onset of a recession. Any delay in employment can reduce asset accumulation over their lifetimes."

While layoffs remain largely concentrated in the tech industry right now, over one million Americans could lose their jobs next year, based on the Federal Reserve's unemployment rate projections.


If this happens, there's reason to believe young Americans will be particularly impacted. In 2020 for instance, Gen Z's unemployment rate rose from 8.0% in February 2020 to 26.9% in April, while millennials' increased from 4.0% to 14.3%. Gen X's unemployment rate, however, only rose from 2.9% to 11.7% over the same period, while Boomers' increased from 2.6% to 12.5%.

And when young people remain unemployed for long stretches or are forced to take lower-paying jobs to earn an income, this can have long-term financial consequences. The Census Bureau, for instance, found the Great Recession cost the average millennial roughly 13% of their potential earnings between 2005 and 2017.

Are you a Gen Z or millennial with a growing credit card balance or the inability to pay your bills in recent months and willing to share your stoy? Reach out to this reporter at