As many Gen Zers are freshly out of college, they may have not been required to start repaying student loans just yet. In fact, when you’re in deferment, your student loan balance may show up on your credit report, but it doesn’t really hurt it. On top of that, in response to COVID-19, the CARES Act prohibited the accrual of interest on student loans, both subsidized and unsubsidized, and paused repayment requirements. This gave Gen Zers fresh out of college a little more room to breathe as they started their working lives. This simply means that the youngest adult generation may not have felt the brunt of required monthly payments or the sting of late payments, delinquent balances and increasing loan amounts just yet.
When comparing Gen Z finances to millennials, the effects of the 2008 recession should be considered. It’s quite possible that when millennials were 18 – 26, they were financially set back. After all, in 2008, over 11 million people were unemployed, meaning millennials likely faced unemployment and financial setbacks early in their careers. Furthermore, employers' hiring projections for young adults decreased by nearly 21% between 2008 and 2009, according to theNational Association of Colleges and Employers(NACE). This could explain, in part, why millennials, even a decade later, are trying to make up for lost time.
According to astudy conducted by CNN Business, many millennials feel as if they could be better off had they not graduated during the 2008 recession. Their generation entered adult life during a period whereunemployment rates were at an all-time high, the stock market was rapidly dropping and many companies reduced hiring numbers. For millennials who took out loans to finance their education, this would’ve been a hard financial hit. New college graduates typically must start paying on their loans less than a year after graduating (typically about 6 months), which could be difficult if they don’t have a solid source of income. On top of this, whether they could find a job or not, interest rates gradually accrued more debt balance making it difficult to recover.
Experiencing the consequences of the recession scared many millennials away from taking risks that could have improved their financial health, according toForbes. After watching the housing market crash in 2008, many young adults were afraid to purchase a home. In the same way, they were also afraid to take on credit card debt and business loans, as they were afraid they would not be able to repay them. Furthermore, it didn’t help that many graduated with student loan debt and little to no money saved. The panic and stress brought on by the Great Recession could be a determining factor as to why millennials, and even Gen Xers, are further behind in their finances.
Financial literacy may also play a big role in the strides Gen Z is making. While the youngest adult population was raised in an era where social media had been accessible from a young age, older generations did not have the same pleasantries. Gen Z has had the power of the internet right in their pockets since they were children. From a simple Google search to finance influencers, there is limitless information on the web. However, despite the accessibility of the internet, we found that that 40% of Gen Zers receive financial advice from their parents – the same parents who have felt the brunt of lost opportunities.
It can be concluded that Gen Z has higher credit scores and seemingly better financial health than millennials due to timing and access to educational resources. When compared to people with more debt, possible delinquent balances and credit impacts from student loan debt, it makes sense that Gen Z is outscoring and keeping up with older generations.
