Gen Z Spending Habits and Credit Cards

Recent trends show that Gen Z is using credit cards at a much higher rate than Millennials did at the same age, and that many Gen Z cardholders are accumulating significant debt early in life. But why are credit cards being used more often than in the past?

We explore why this is happening for Gen Z consumers, the risks associated with early credit card debt, and strategies for using credit responsibly. For those already feeling overwhelmed by debt, we’ll outline practical steps to regain financial control, including debt management plans.

Understanding Gen Z’s shopping habits

To understand why Gen Z relies heavily on credit cards, it’s important to first examine their distinct shopping habits, which differ from previous generations. Here are some key trends shaping their behavior:

• Preference for online shopping: Gen Z overwhelmingly prefers digital-first shopping experiences, with many purchases made via mobile apps and e-commerce platforms. This group values convenience and speed, which often leads to using credit cards or “Buy Now, Pay Later” (BNPL) options to complete transactions.
• Sustainability and ethical spending: According to NielsenIQ, Gen Z prioritizes brands that align with their values, including sustainability, diversity, and ethical practices. While they are willing to pay a premium for these products, it can also result in higher spending overall.
• Impulse buying and influencer marketing: Social media plays a significant role in shaping Gen Z’s purchasing decisions. Exposure to influencer recommendations and targeted ads encourages spontaneous purchases, often financed by credit.
• Desire for unique experiences: Compared to Millennials, Gen Z tends to spend more on experiences such as travel, dining, and entertainment. These purchases are often paid for using credit to stretch limited disposable income.

These habits, combined with increased credit access, contribute to Gen Z’s reliance on credit cards—and in many cases, to their accumulation of debt.

Why is Gen Z accumulating more credit card debt?

Several factors contribute to reliance on credit cards, some of which can be closely linked to Gen Z’s shopping habits:

1. Economic pressures: Rising living costs, coupled with stagnant wages, leave many young people turning to credit cards to cover basic expenses.
2. Increased accessibility: More than ever, as part of Gen Z’s shopping habits, is the presence of mobile-first platforms, alternative credit scoring systems, and “Buy Now, Pay Later” options. These make obtaining and using credit easier than ever.
3. Lack of financial literacy: Like previous generations at the same age, many Gen Z consumers may not fully understand how interest works or the consequences of only making minimum payments. Young people often face a learning curve with credit, which can lead to mistakes early on.
4. Increased vulnerability to fraud: Gen Z is more susceptible to financial scams and fraud than past generations, likely due to their digital-first lifestyle and trust in online platforms. According to a report from Time, young adults are targeted frequently and often fall victim to scams, leading to unplanned debt and financial setbacks. 

The risks of early credit card debt

For Gen Z’s, accumulating credit card debt at a young age comes with significant risks, including:

1. Growing debt and interest costs: Debt compounds quickly when only minimum payments are made, leaving cardholders with mounting balances.
2. Lasting credit damage: Missed payments or maxed-out cards can harm credit scores, making it harder to qualify for future loans or rentals.
3. Financial goal delays: Debt can create barriers to saving for milestones like buying a home, starting a business, or traveling.
4. Emotional stress: Financial struggles often lead to anxiety, shame, and fear, which can impact mental health.

Gen Z and credit cards: Essential financial literacy

For Gen Z, using credit wisely starts with prioritizing financial education. Key topics to focus on are:

1. Understanding the costs of credit: Learn how interest accrues and why high-interest debt can quickly spiral out of control.
2. Building a strong credit history: Pay bills on time, keep credit utilization low, and regularly monitor credit reports.
3. Recognizing and avoiding scams: Identify scams and misinformation by verifying financial advice through trusted sources.
4. The importance of budgeting: Create a realistic budget to track spending and ensure credit card payments are manageable.
5. Credit card basics: Understand key terms like APR, minimum payments, and credit limits to avoid common pitfalls.
6. Emergency fund planning: Save for unexpected expenses to avoid relying solely on credit during financial emergencies.

By mastering these concepts, young cardholders can avoid unnecessary debt and set themselves up for long-term success.

What to do if you’re struggling with credit card debt

If you’ve already accumulated more debt than you can manage, take these steps to regain control:

• Speak up: Talk to trusted friends, family members, or financial counselors about your situation.
• Create a repayment plan: Develop a structured plan to tackle debt in manageable increments.
• Explore solutions: Options like debt consolidation, settlement, or a debt management plan (DMP) can provide relief.
• Face the problem head-on: Ignoring debt only worsens the situation, so take proactive steps to address it.

Credit card misuse can lead to debt that’s difficult to escape. If you’re relying on credit to make ends meet, MMI is here to help. Our certified financial counselors can help you analyze your financial situation, create a realistic spending plan, and offer tailored solutions to reduce debt. Get started today and see how we can help.