Gen Z Is Poised to Spend More on Debt Than Others. It Could Derail Retirement. (2024)

Jade Canney didn’t expect to move back into her parents’ home after renting her own apartment for about a year, but the 22-year-old felt that she had no choice after “drowning” in debt that dragged down her credit score.

Ms. Canney, a sheet metal worker in Springfield, Mass., is paying down roughly $6,500 in outstanding credit card balances, along with several thousand dollars’ worth of medical bills, student loans and other debt, most of it accumulated when she was laid off and out of work for more than six months last year.

As a construction apprentice in a unionized trade, Ms. Canney said her income had been good when she worked full time, but the seasonality and project-based nature of her job meant that her earnings could be inconsistent. “There’s a lot of weeks when I have nothing left after I pay my bills,” she said. “The more you make, it’s like the more you’re drowning. It’s never enough.”

Personal finance experts say Ms. Canney is not alone. Members of Generation Z are struggling to keep up their credit scores because of a combination of higher borrowing costs, slowing wage growth, student loans and other debts. The upshot is an economic climate in which young adults are — and will be — paying an increasing amount of their disposable income servicing their debts, more than Americans in other age groups do. It’s a reality that experts worry could derail their intentions to build wealth, buy homes and save money for retirement.

Evidence suggests that more young adults are struggling financially today than in the immediate aftermath of the pandemic. Diana Rascon, a senior certified consumer credit counselor at Money Management International, a nonprofit credit counseling organization, said that more young adults, as well as parents reaching out on their children’s behalf, had sought help from her organization to manage growing amounts of debt.

Ms. Rascon said many young adults don’t understand the fundamentals of borrowing, including interest rates and the way high borrowing costs can cause a debt balance to balloon. A credit cardholder’s interest rate, or A.P.R., for instance, reflects the cost of borrowing money as an annualized percentage. “The shocking thing for me as a counselor is they don’t know what an A.P.R., or annual percentage rate, is. They don’t know how to budget. They don’t know how to track their expenses,” she said. “Some of them don’t even know what a credit report is or what that means.”