Banks and FinTech are exploiting the experience economy of Millennials and GenZ whose debt to income ratios have increased.
When we are young we want to sample what life has to offer. Heck, we want to experience everything! From travel to gadgets to fashion, young people have considerable buying power in retail.
Hacking how they live via credit then can do wonders for the growth of your economy.
That’s exactly what’s happening with 90’s born “Gen Z” in China and even in the United States.
Generation Z is growing up. The oldest members of the generation born between the mid-90s and the mid-2010s (specific year ranges vary depending on who is supplying the figures) are graduating from college, getting their first jobs and starting to form their relationships with credit products.
Indebted Millennials Want to Live Differently
While Millennials are hooked on experiences, and living in debt is just their new normal, Gen Z is pragmatic and savvy discount shoppers. Yet both generations really love living on credit.
In the aspirational Chinese society, the “American Dream” has been imported as the New China dream. How does this work? Well, the Chinese dream of luxury brands is largely dependent upon the nation’s millennial and Generation-Z shoppers.
Millennials are changing the future of retail and consumerism too, from everything from Beyond Meat burgers to minimalism and the rise of highly customized life-work arrangements. Common feature? A lot of debt.
Gen Z Preferences Rule
Global management consultants Bain & Company estimates this group will dominate, to the tune of 46% of purchases in that market by 2025. If China is becoming the most important global market for consumerism, Gen Z are entering the labor force and becoming a key demographic.
68% of millennials prefer credit cards that offer rewards, and most Millennials now operate on credit card debt. Convenience tricks consumers into thinking they can afford experiences that may be in reality, they cannot actually afford.
This could easily create a debt bubble (Paywall) in places like China, where it’s even easier to live off of credit.
Around 43% of millennials say they’re carrying a monthly balance on their credit card. This means at least 30–40% of young people in society today are living in the vicinity of paycheck to paycheck. They are comfortable with debt, and perhaps too comfortable since many of them are too young to easily remember what a global recession feels like or even what 2008 did to some of their older cohorts.
The percentage of credit card-eligible Gen Zers who carry a balance increased by 41 percent between Q2 2018 and Q2 2019, according to a new report from TransUnion, reaching a total of 7.75 million. This amounts to the distribution of wealth favoring older generations who are basically profiting from the vulnerability to carrying debt of young people in a system that’s stacked against them.
Capitalism by New Rules for Young Professionals
Student loan crisis, higher cost of living, less career certainty, cities becoming too expensive — young people have to navigate a different world where some of the jobs they do will also become obsolete due to technological automation. It’s only normal they would be slaves to increasing debt.
Credit cards aren’t the only area where Gen Z is showing a strong interest in lending products. Auto loans were up 40 percent year on year, according to TransUnion, and personal loans were up by about 45 percent. Gen Z (those under 25) are getting hooked to an inverse American dream where to live a normal life, being in debt is increasingly acceptable.
Gen Z is Growing up into a Debt Void
I actually think the way China is addicting their Gen Z cohort to debt is dangerous for the future of the global economy. Just like the student loan crisis in the United States, these things have a way of snowballing in very unfortunate ways that catch up with consumer sentiment in one way or another.
The announcement by Facebook of its new cryptocurrency, Libra, is just one example of how new forms of digital payment tools could disrupt and further create problems for how Gen Z and Millennials use than money. Seamless convenience is not always good for the end consumer.
Gen Zers with mortgages jumped 112 percent year on year between 2018 and 2019 — though big growth is easy when starting with small numbers. Gen Z is growing up fast and it will change the FinTech industry and how easy debt is becoming too accumulate.
Banks, fintechs, and peer-to-peer lenders aggressively court a cash-strapped generation of consumers and it’s only going to get worse. I do think Gen Z are more financially literate at a younger age than Millennials were at the same age though.
If the 2020 recession is fierce, nobody talks at how bad the consequences for debt might be. As an economic and money futurist though, I think about it a fair bit. Because outside of the United States and China, the global economy is not really that strong for the second half of 2019.
Young people might “foot the bill” if the growth-fanatic older generations who are actually exploiting them. That’s capitalism.
Credit card rates have never been higher, and many cardholders are paying around 20% on their balances. That’s just the world we live in where young people want it all.