Younger adults rely more heavily on debt to weather cost of living crisis

The cost of living crisis looks set to deepen generational financial inequality as Gen Z and millennials are four times more likely to need to take on new debt this year to meet rising costs according to research by Credit Karma

The research found that nearly three quarters (70%) of UK currently use credit, holding an average balance of £1,328. This rises steeply amongst millennials, who have the biggest average credit balances at nearly £1,600.

Age groups differ in their approach to repaying debt. According to the study,  a third (29%) of baby boomers don’t pay off their balance every month. This jumps to 60% for Millennials and 64% of Gen Zers. At the same time nearly one in five Britons (17%) only pay the minimum balance on their debt, which, if continued, could take them 9 years and 3 months to pay off on average.

Attitudes toward borrowing also vary heavily by generation: baby boomers are most likely to have a credit card (57%) and overdrafts are most commonly used by Gen X (18%), while millennials are more inclined to use buy-now, pay-later (17%).

Young people are also more likely to struggle with keeping on top of instalments as 11% of Gen Z and 10% of Millennials admit to falling behind on repayments. 

While the cost of living crisis looks set to mount financial strain across the board, with over one in ten (12%) UK adults believing their retirement plans will be delayed, this financial strain could again have a more acute effect on younger Britons. While 8% of total adults reported that it will delay the buying of their first home, this rises to one in five (20%) 18–34-year-olds.

Akansha Nath, Head of Partnerships at Credit Karma said “Relying on credit has become a necessity for many households in response to the cost of living crisis. While our new research shows that young people are unfortunately feeling the effects of this financial pressure more than any other age group, there are a number of steps that all borrowers can take to put themselves in a better long term position. Shopping around for competitive rates, paying as much of your balance off as you can afford to each month, and ensuring your credit score is as strong as it can be, can ultimately reduce the interest you end up owing over the long term.”