Credit Through the Eyes of Gen Z: Aligning Your Offerings to Future Generations

As we investigate the credit industry, there has been a noticeable change in how my generation, Gen Z, has prioritized acquiring and paying lines of credit — also known as the Payment Hierarchy. Gen Z’s generational differences in the credit industry have arisen from experiences leading to unique actions and preferences. With Gen Z currently having $143 Billion in buying power and — in 10 years — is projected to have more buying power than millennials and baby boomers combined, these events and preferences we discuss below are crucial for businesses to understand.

Fear shaped by experiences

When we look at the three main events that have shaped the buying and credit habits of my generation, three significant topics stood out:

1. Current young professionals in Gen Z lived in households that experienced the financial crisis of 2008. We saw firsthand the effects of plummeting home values, foreclosures, and job uncertainty in our families and friends.
2. Excessive student loan debt, which piled up throughout the 2010s, finally came to light. The resulting predatory lending has greatly influenced Gen Z’s perspective and propensity to take out loans to pay for our education.
3. The pandemic taught most, especially younger generations, to save and keep their pockets tight as the uncertainty and shutdowns caused by the pandemic initially left more than 6 million jobless in the U.S. without an idea of when or if the world economy would recover.

Although we note the fear caused by these experiences, there are benefits that these lessons, new technology, and concurrent knowledge have provided to us. In a recent study, 50% of Gen Z have a credit score of 661+ compared to 36% of millennials at the same age. This statistic demonstrates that my generation is well equipped with tools, such as loan calculators, financial lessons on YouTube, and readily available credit scores, which enable us to implement best practices for personal finance and credit usage. We continue proactively seeking more tools and payment options to optimize our habits. Many Gen Z applicants seek firms with the capabilities and frameworks to manage their unique credit lifecycles, a trait many firms lack.

A cultural shift is seen in differing credit line risk aversion

Past experience and cultural changes have altered the actions of my generation. I do not feel the same pressures my parents and grandparents had regarding graduating college, starting a family, buying a home, and settling down. This point shows up as home ownership, and census data have shown that young adults are getting married, having children, and seeking houses later than previous generations. These differences, whether risk aversion or likelihood to use certain credit products, are seen amongst different lines of credit.

• Access and credit card usage has decreased compared to those of previous generations. Current data shows that 3 in 10 Gen Zers are rejected on their first application for a credit card — a result of the CARD Act of 2009, which made it more difficult for those younger than 21 to attain cards. This data is combined with a statistic showing that 78% of Gen Z worry about taking on debt.
• As mentioned earlier, for years, Gen Z has seen the insurmountable and predatory student loan debt in the media, family, and friends. When comparing usage by generation, only 37% of Gen Z use student loans compared to 44% of Millennials.
• Buy Now Pay Later (BNPL) has started to take off, and as my generation prefers to shop in e-commerce retail, many have found this an easier way to budget and not take on the traditional debt that comes with credit cards. However, 60% of consumers prefer to use a BNPL within their existing credit cards instead of opening new lines of credit.
• Trading activity increased during the pandemic, led by the meme craze and Wall Street Bets on Reddit. My generation discovered new ways to pass the time. Despite overall hesitation to take on debt in the form of credit cards, 4 in 10 investors said they have taken on debt to invest, including 80% of Gen Zers and 60% of millennials.

Well-timed actions by organizations can help leverage this data to prepare offerings for the younger generations. We see increased payment options and credit lines pop up every day with the chance to lessen particular credit product usage. Some are becoming obsolete for my generation. To remain competitive, firms must maximize existing payment and lending solutions to prepare for tomorrow's consumers.

Prioritize rewards and data protection

As a generation, our experiences have led to actions and preferences towards certain lines of credit. With fear being a significant factor in our decision-making process, finding a way to bridge that should be at the forefront of a firm’s mind. I previously mentioned that individuals display elevated risk aversion to taking on credit card debt, but rewards can be a driving force in changing that. Besides annual fees and low-interest rates, individuals said that a good rewards program was most important in their credit card decision. Within programs, we look for cashback and rewards — 86% of Gen Zers want cash back on every purchase, and 83% want rewards that do not expire.

Another major priority is data protection and privacy, as 27% listed it as their greatest concern, significantly more than any previous generation. We have high expectations from our services, with 90% of individuals wanting protection from fraudulent websites and can lock accounts if they expect fraud. Our generation has seen major data leaks and increased use of e-commerce during Covid-19, which increased the risks of credit card fraud. This situation made Gen Z wearier of adding credit and private information to online applications.

Businesses must prepare and use emerging technology and processes to align data protection with the privacy needs of their customers. With the uptick in digital fraud, they must analyze augmenting and optimizing current security and privacy protocols.

How NTT DATA Risk & Compliance Can Help

Here at NTT DATA, we have successfully mobilized several offerings with the help of strategic partnerships with third-party software vendors. Expertise and solutions exist within:

• Life Cycle Credit Risk Management
• Payment Optimization
• Lending Optimization
• Fraud Optimization
• Data Privacy and Security solutions

As organizations are looking for new technology-based solutions to optimize the efficiency of existing functions in the areas above, we provide expertise and capabilities to include automation, AI, and enhanced datasets. We enable our customers to advance these functional areas of their business to understand and capture the value from Generation Z and beyond.

Learn more about NTT DATA’s Risk and Compliance practice and how we can provide outcome-based value to your risk management methods.