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Next gen may outshine millennials in credit prudence: study

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Each generation bears its own debt burdens and conditions, leaving some Canadians feeling cash-strapped and overwhelmed. But one generation, Generation Z, is said to be more credit active than their predecessors, millennials, and also look to be in a better situation financially than millennials were, according to TransUnion Canada. 

Its new study shows 63 per cent of Canadian Gen Zs—those born in or after 1995—are credit active and of that subset, 99.8 per cent of Gen Z own a credit card. Credit active means a consumer that has at least one or more credit products open. By comparison, only 50 per cent of U.S. Gen Z consumers were reported as credit active and owning a credit card. Student loans and personal loans were the second and third most common products for the Gen Z demographic, which currently makes up 28 per cent of the Canadian population (or 10.5 million people). These findings were reported as of Q2 2019. 

“Credit cards are the entry point for the Gen Z generation because they are the easiest to get from a qualifying credit perspective,” and “lenders are pretty aggressive in Canada in terms of credit cards,” Matt Fabian, director of financial services research and consulting at TransUnion Canada tells Yahoo Finance Canada.

The report also suggests that Gen Z is in better credit standing than millennials were, which Fabian thinks may be because of their research and digital skills.

“I think they do look at aggregator websites and check their online credit scores; we’ve seen this in the research we’ve done,” he says. “Millennials have often been looked at as the ‘me generation’ more focused around consumption,” and maybe less around planning for that consumption, or unaware of how to manage debt as it happens. 

The report notes that 50 per cent of Gen Z consumers have credit scores in the prime and above risk tiers, so their credit scores are healthier in relation to their life stage. Fabian also recounts U.S. findings that suggest during the same age period that Gen Zs are being evaluated, millennials’ “credit scores were a little bit worse and they carried a little higher debt.”

Still, Gen Z consumers have elevated levels of delinquency which can be seen with the TransUnion data, says Fabian, but he argues it is “not unique to them,” but rather “a function of being new to credit.”

That was then, this is now

Millennials were once new to credit, but two factors may have made those early on-boarding moments more difficult. One is that millennials didn’t have streamlined access to online resources that Gen Z consumers now receive, instantaneously. The other factor being the 2008-2009 economic recession.

“This generation (Gen Z) has never experienced a downturn in the economy, but as credit consumers, they’ve seen low interest rates and they’ve seen record unemployment, which is promising,” adds Fabian. “I think the true test will be if and when there’s a downturn, how they respond. Will they react differently? Right now, it seems like they will.” 

As the first truly digital generation, Gen Zs know how to get answers if they exist online. They also see how the workforce is changing and that to get ahead building credit is critical. After all, general optimism around entrepreneurship continues in Canada, so the need to create healthy financial habits early, perhaps even earlier than millennials thought to, is something to consider. Being in business for oneself has become more popular, and millennials arguably served as the guinea pigs to that popularity.

“We find that Gen Z are more responsible with their credit card usage, having a lower balance as a percentage of their income,” says David Fortin, portfolio manager for Canadian investment app Mylo, where every transaction is rounded up to the nearest dollar, with the difference put into an investment account automatically for each user.

Gen Z vs Millennials

Mylo survey


“Gen Zs are more aware about how tax-saving efforts can help their financial situation," he says, while noting that socially responsible investing options have become of increasing importance for the Gen Z generation.

Not only are Gen Z more proactive with their research, but they know how to compound that research and make it count with their money and with their causes. 

“Being more socially responsible can translate into good behaviour financially, too,” says Fabian.