The next generation is beginning to enter an evolving credit market.
Matt Fabian, director of research and industry analysis at TransUnion Canada, said for most of Generation Z, their credit lifecycle is just beginning.
“The Gen Z folks are 22 or 23 years old. They are just entering the credit market for the first time,” Fabian said. “[They begin to build credit through] credit cards or buying their first car.”
Generation Z poses a unique situation for dealing with debt.
“They are coming right in with technology. That’s the only thing they’ve ever known,” Fabian said. “They probably have more access to those types of credit monitoring tools.”
A younger group also means they’ve only ever known a low-interest environment. It wasn’t until the second and third quarter of 2017 that the Bank of Canada hiked interest rates.
“A lot of these people will be seeing interest rate increases for the very first time,” Fabian noted. “For those of us in the credit market for a long time, we understand what stress that puts on your disposable income.”
It’s not just Gen Z feeling the shift.
“There is a bit of a payment shock that comes with that [for various groups],” said Fabian. “All of a sudden, pockets of people making the minimum payments on different credit obligations find that dollar has to be stretched.”
The introduction of digital wallets like Apple Pay is also causing money habits to change.
“We have seen credit card spend imbalances shift a little bit. One of the things we’ve noticed just generally over the last couple years, consumers have [fewer] credit cards in the wallet,” Fabian said. “It used to be people had two or three cards — now the average is trending to less than two.”
Fabian said part of the reason for fewer cards is the draw of online shopping.
“More and more people are buying online. In most cases, they’ve already linked their primary card to that purchase channel,” said Fabian. “[Outside of the internet] it’s about consolidation — this is my primary card.”
Overall, Fabian thinks people are managing debt responsibly — even though they are taking on more of it.
“The Canadian economy has been expanding over the last couple of years — consumer confidence is high,” Fabian said. “Understand how much you can take on.”
Fabian suggests one idea: give yourself a “stress test” when it comes to your debt.
“You’ve been operating in this low interest rate environment, and you’re used to making payments at a certain amount — think what would happen if the interest rate goes up and you’re stretched a little farther,” he said.
“How much more can you go? Guide yourself that way.”
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