Unlike millennials, Gen Z is entering the workforce during a more prosperous time.
Rather than beginning their careers in the post-Great Recession period, Gen Z has the benefit of greater opportunities in both the gig economy and traditional corporate settings, where there is a high demand for tech-savvy workers. This favorable environment appears to be giving them an additional advantage: according to the credit bureau TransUnion, Gen Z members are in a better financial position than millennials.
The study examined consumers born after 1995 and their credit histories. Researchers found that over half of Gen Z is credit-active and has a VantageScore of 661 or above, indicating that young workers aren’t facing the same struggles with debt as millennials did.
TransUnion reported that only 39 percent of millennials at the same age achieved the same VantageScore.
Another factor that might give younger consumers an advantage is their spending habits, which differ greatly from millennials and make them less likely to spend heavily early on.
Learning from Their Elders
Matt Komos, TransUnion’s vice president of US research and consulting, explained that Gen Z is benefitting from the wider availability of loans compared to ten years ago.
“During the recession, the credit marketplace contracted significantly,” Komos wrote. “It was difficult to get a loan anywhere.”
Additionally, Gen Z is approaching finances differently, feeling more comfortable with smaller loans: 41 percent of young workers today have a credit card, and 23 percent have an auto loan. In contrast, when millennials were the same age, only 34 percent had a credit card, and 16 percent had auto loans.
Millennials, on the other hand, were more likely to take out student loans than Gen Z, which is now a significant burden as their largest debt comes from college-related loans.
Only 37 percent of Gen Z has taken out student loans, compared to 44 percent of millennials at the same age, suggesting that younger workers today are less likely to be swayed by the promises of higher education institutions.
It’s almost as if the challenges millennials faced in finding stable employment in their field served as a warning for the younger generation.
Building Credit from an Early Age
When it comes to establishing a strong financial future, building credit is essential. It is also a conservative and relatively simple way to create a financial profile that doesn’t require a large initial investment.
Gen Z seems to understand this, choosing credit cards over student loans. Millennials, however, were often encouraged to view higher education as the key to securing their future, believing that a college degree would help them land a better job. Unfortunately, this approach didn’t always lead to the expected outcomes.
As Gen Z builds its credit, their scores improve.
When these young workers are ready to make bigger financial moves, such as buying a home or taking out loans to start businesses, their credit scores of 740 and above will be crucial in accessing high-quality loan products.
With heavy student loan debt, millennials are less prepared to seek the same types of loans with favorable interest rates.
Conservative Use of Money Sets Gen Z Apart
Young adults today grew up hearing cautionary tales from older siblings, neighbors, and relatives and witnessing the negative financial outcomes millennials faced due to their high student debt. It’s no surprise that Gen Z tends to be more cautious when it comes to money.
A survey by the American Psychological Association found that Gen Z consumers aged 18 to 21 view money as their top source of stress. In fact, four out of five Gen Zers list money as the main thing that causes them anxiety.
Given that these concerns greatly influence how young adults manage their finances, it’s only natural that Gen Z is taking a more careful approach to their money, at least for now. If this trend continues, Gen Z could become some of the most financially successful professionals in a long time.
In the meantime, millennials may still have a chance to catch up. However, they will need to focus on paying off their student loan debt as quickly as possible.
