Gen Z's debt has ballooned. Is this worrisome?

Gen Z has nearly tripled its overall debt load in the past two years, a new survey shows. But that may actually be a good thing.

Gen Zers (ages 18 to 26) have increased their debt outside of mortgages by 99% – more than any other generation, according to online lending platform Lending Tree’s analysis of more than 150,000 credit reports from the first three months of 2023 and 87,000 from March 2021. At the same time, Millennials (ages 27 to 42) swelled their balances by nearly 21%. By contrast, Gen Xers (ages 43 to 58) and Boomers (ages 59 to 77) cut their debt by 3% and 26%, respectively.

Including mortgages, Gen Z increased their total debt by 179%, or an average of $10,797, to $34,133, LendingTree said. That, however, is the lowest dollar amount among all four generations.

“It’s important to understand that accruing debt isn’t always a sign of struggle,” said Matt Schulz, LendingTree’s chief credit analyst. “It can actually be a sign of confidence.”

Why Gen Z’s ballooning debt balance isn’t worrisome

Part of it is just growing older, Schulz said.

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“The oldest Gen Zer is 26 now,” he said. “They’ve had time to establish some credit, so their credit score is rising, meaning they’re more likely to qualify for loans, and the loans they get are more likely to have better terms.” He added that Gen Zer income is likely higher, too, and any loans they receive may be bigger than what they might’ve been able to take out a few years earlier.

Another part of their debt burden may stem from their confidence that they can handle higher amounts.

“Yes, they’re taking on debt, but they’re doing so with the belief that they’ll be able to handle it going forward,” Schulz said. “I’d bet that is at least part of what we’re seeing.”

How does Gen Z measure up against other generations?

While Gen Z has the fastest growing debt load, Gen X has the largest average debt balance at $167,493, followed by Millennials’ $124,295, LendingTree said.

“You can’t run up big debts if you can’t get access to credit,” Schulz says. “Gen Xers have higher credit scores than Millennials and Gen Zers and bigger income potential than baby boomers, many of whom have already retired. That means that it’s likely easier for them to get approved for more and bigger loans or credit lines.”

Much of Gen X’s debt stems from a large average mortgage balance of $121,712, which is nearly as much as the total average debt carried by Millennials, and much more than the entire $34,133 debt carried by Gen Z. Boomers owe a total of $119,017, on average.

Baby boomers were the only generation to pay down their overall debts, a reversal from LendingTree’s prior study between 2020 and 2021 when they were the only generation to have increased their debt. In the past couple of years, boomers paid off $21,870 (or 15.5%) of their total debts, LendingTree said.

Where are the generations racking up the most debt?

Beyond mortgages, Gen X is spending the most on their cars. Auto debt accounts for the highest percentage of this age group’s nonmortgage debt, making up 37% of their total debts, LendingTree said.

However, they’re not the ones with the largest share of car debt. Gen Z takes the top spot with 46% of their debt coming from auto loans.