Gen Z & the Debt Trap, Part 2: Hemorrhaging Money
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Hello, I'm Tadeo Ruiz-Noval for the Wall Street Journal. And lately, I've been wondering how I'm going to pay off the nearly $35,000 in student loans that I will owe when I graduate. When I look to my future, that debt is the first thing I think of. How long will it take me to pay it down? Will I have to delay getting married or having a house? Those thoughts keep me up at night. Facing all these questions, I wanted to know what other Gen Zers like me did when their debt loomed so large. So I reached out to the National Foundation for Credit Counseling, or NFCC, a group that provides financial counseling for people struggling with debt. Bruce McCleary oversees membership and serves as a spokesman for the NFCC.
He said Gen Zers mostly sought the NFCC's help to manage their student loans. But last year, he noticed more Gen Zers requesting counseling for something different. More commonly, we're seeing that they're reaching out for assistance with affordable repayment of their credit card debt. And in some cases, they've already fallen behind on their payments and they're getting hit with late fees, over limit fees. Bruce said if Gen Zers aren't able to pay off their debt, that poses a risk that doesn't just affect them. Turns out it's bigger than that. The debt that Gen Z is accumulating, which includes student loan debt, but also includes very high interest rate consumer credit and other loans, those issues are going to come home to roost at some point.
And everyone in every generation may bear some impact of that. This is a special edition of Your Money Briefing for Wednesday, August 21st. This is Gen Z and the Debt Trap, a three-part series that looks at why this generation is accumulating debt so fast, what can be done to slow the growth, and how our debt could affect everyone else. In part one, we learned about the broader economic effects that led to Gen Z's fast debt accumulation. In this episode, we talk about the ramifications of that debt and the personal habits that could be making it worse. This is part two, hemorrhaging money. More after the break.
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How does Gen Z's debt profile look and why does it matter to other generations?
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The pandemic limited Gen Zers' ability to go out, travel, or hang out with friends. For many, it was a time of social isolation. 25-year-old Gaia Jacobs was in Delray Beach, Florida during the pandemic. She had just graduated from Lynn University as a film major and transitioned from working in a shoe store to a photo studio, where she worked as a manager earning $15 an hour. She says that to cope with the isolation during the pandemic, she found new hobbies that made her happy. But they came at a cost.
I decided I was going to pick up learning how to cook and everything. And that's kind of where it all started going down because I was walking to the grocery store and buying whatever I wanted so that I could learn how to cook and like make a bunch of things from scratch.
At this point, she had nearly $40,000 in student loans and owed over $30,000 in a car loan. On top of that, becoming a chef at home increased her grocery bill. If she didn't already have the cash to afford it, the cost for the groceries would end up on her credit card.
I want to eat better, so I'll typically go for the option of just put on my credit card and eat a little bit better and healthier for myself.
Little by little, a purchase here and a purchase there, her credit card usage climbed to $9,000 on two cards.
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