Millennials Outspend Boomers on Credit Cards

The financial behavior of American consumers is shifting notably, with millennials surpassing baby boomers in credit card spending over the third quarter.

As detailed in TransUnion's Q3 2023 Credit Industry Insights Report, in the third quarter bankcard balances hit an unprecedented high of $995 billion, up 15 percent year-over year.

The average consumer balance soared to $6,088, an 11% spike—setting a 10-year record, TransUnion's report says. And the balance share of millennials—those aged 27 to 42—climbed past that of baby boomers, positioning them behind only Gen X in terms of credit utilization.

The findings signal a broader trend of credit reliance amid escalating costs of living and challenges in the housing market.

Comparative studies from earlier this year showed that 45 percent of millennials owe more on credit cards than liquid money they've saved for emergencies, indicating a shift in financial priorities.

Charlie Wise, senior vice president of global research and consulting at TransUnion, said that while inflation has cooled in recent months, still-high prices have forced consumers to tap into existing credit lines.

"It will be worth watching how those balances are further impacted as some consumers begin feeling the pinch of the resumption of student loan payments," Wise said in a statement.

Millennials' Debt Load Is Increasing

The resumption of student loan payments is a looming concern for American consumers, particularly those in the millennial cohort who have aspirations of owning a home. According to U.S. Census data, the millennial homeownership rate hit 51.5 percent last year. Homeownership may be a toil for a generation who hold roughly 30.26 percent of the total student debt load, amounting to an average of $32,800 per person, according to Education Data.

More than that, two-thirds of millennials have at least one credit card, a Cornerstone Advisors report shows, and 40 percent have two or more. The average college student has more than $3,280 of credit card debt.

Adding to the millennial debt load, TransUnion says roughly 13% percent of unsecured personal loan (UPL) borrowers also have student loans, which exposes the overlap between unsecured debt, traditional debt, and education financing.

With millennials now facing higher credit utilization and delinquency rates, their ability to qualify for a mortgage could be compromised. The current real estate market, characterized by limited inventory, high mortgage rates, and elevated prices, further exacerbates the homebuying challenges for millennials.

"A growing number of individuals are holding multiple jobs as rising costs of living put increasing pressure," LPL financial chief economist Jeffrey Roach told Newsweek.

Impacts on the Real Estate Market

The real estate market itself is reacting to the shifts. "We're waiting for multiple data points to soften for potential buyers, not just millennials, to enter the market," Detroit real estate agent Dominique Morgan told Newsweek. "Though, with the portion of debt this generation is saddled with, there could be a knock-on effect on demand, potentially slowing down the market and impacting home values."

Despite the headwinds, some millennials are navigating the market strategically. Last year, millennials bought homes more than any other generation, propelling the market share of millennials who own a home to over 50 percent.

"Resourceful millennials are leveraging rising home equity and seeking out alternative homeownership solutions, like co-buying with friends or investing in multi-family properties," Morgan said, adding that the Detroit area saw a flock of younger home buyers last year.

However, the surge in credit usage among the millennial class is juxtaposed with a decrease in total mortgage originations, which fell nearly 37 percent year-over-year. This year's high interest rates and soaring home prices are causing potential homebuyers to rethink homeownership.

The decline in mortgage originations is a clear indicator of the affordability crunch affecting a generation already burdened by student debt.

Millennials Facing Potential 'Payment Shock'

The New York Fed's report on consumer credit echoes TransUnion's, noting a substantial $126 billion increase in mortgage balances, despite the drop in originations. Credit card delinquency, particularly among millennials, spiked, corroborating the distress signals sounded by climbing balances.

"The continued rise in credit card delinquency rates is broad based across area, income and region, but particularly pronounced among millennials and those with auto loans or student loans." Donghoon Lee, economic research advisor at the New York Fed, said in a statement.

The New York Fed found that credit card delinquency rates among millennials exceed pre-pandemic levels while other generations, including boomers, Generation X, and Generation Z, are at or near their 2019 averages.

With the resumption of student loan payments looming, TransUnion said there is a palpable anxiety about a potential "payment shock." The credit agency's simulation anticipates that nearly half of borrowers could face a payment shock, with expected amounts to handle soaring above $200.