Gen Z Is Charging Too Much, And Not Paying Bills: What The Latest Credit Card Delinquency Data Says About American Consumers

Credit delinquency is on the rise.

High credit card rates and enduring inflation are hurting consumers, especially those considered “Gen Z.” Here’s the latest New York Fed data about the American consumer.

The Data: The New York Fed's Center for Microeconomic Data released its quarterly credit card debt report on Tuesday. Although credit card balances fell by $14 billion in the first quarter, many borrowers are behind on their credit payments.

The report connected utilization rates with the probability of delinquency. A high 90% to 100% utilization rate has become increasingly common since the COVID-19 pandemic; these borrowers are unsurprisingly more likely to fall behind on payments and become delinquent.

Gen Z Credit Woes: The New York Fed’s report found that members of Generation Z were most likely to run into credit issues. That’s because 15.3% of the borrowers in that age bracket had maxed out their accounts.

That’s higher than the 12.1% for millennials, 9.6% for Gen X and 4.8% for Baby Boomers. Gen Z predictably had the lowest median credit limit at $4,500.

Will it Improve?: The Fed noted that the data does not indicate that the situation will improve without a change in macroeconomic conditions.

“For a positive improvement in credit card delinquency, we would need to see the delinquency transition rate among maxed-out borrowers begin to decline and/or the share of maxed-out borrowers to fall,” the report said. “So far, the data show neither of these trends moving in the right direction.”

Why it Matters: Increased delinquency is bad news for credit card companies such as American Express Company AXP, Visa Inc V, Capital One Financial Corp. COF and Mastercard Inc MA. Higher delinquency rates can lead to increased provisions for credit losses and tighter lending standards.

It also complicates things for financial institutions such as J.P. Morgan Chase & Co JPM and Citigroup Inc C who will face similar challenges.

Penalties are also less severe for consumers who delay paying bills. As recently as March 5, the Biden administration finalized a rule to eliminate junk fees on credit cards and cap most late fees at $8, down from an average of $32.

The Consumer Financial Protection Bureau touted that the new regulation would save families more than $10 billion a year.

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