Gen Z Is Swimming in Debt, But Not Pressing Pause on BNPL Holiday Shopping

Members of Gen Z (those born between 1998 and 2012) may be reshaping retail, as Nielsen IQ suggested, but they’re doing so at great cost to their financial health.

According to a recent report from Fortune, millennial and Gen Z consumers are facing extreme debt loads as compared to March 2022, with Credit Karma data indicating that credit card balances for members belonging to those two demographics are up over 50% since that time.

And they’re not slowing down their spending as the holiday spending season kicks into high gear, either. Emily Childers, a consumer financial expert for Credit Karma, signaled that trouble may lie ahead for many younger consumers.

“Young people are entering this holiday season already in the red,” she said, per Fortune. “And, based on what we’re seeing in the data, they’re continuing to bury their heads in the sand and spend.”

Gen Z Embracing the Appeal of Buy Now, Pay Later (BNPL) Shopping

Part of this increased spending, and debt load, might be laid at the feet of Gen Z’s embrace of buy now, pay later plans.

Data appears to support the notion that Gen Z is adopting BNPL as a preferred payment strategy. According to a recent PYMNTS survey, 34.1% of Gen Z respondents were very or extremely likely to use BNPL at the checkout when doing their holiday shopping. Further, another 34.4% of zoomers polled said they were at least somewhat likely to do the same — meaning that a vast majority (68.5%) of younger consumers surveyed either planned to pay via BNPL this season or at least were considering doing so.

A report from Retail Customer Experience also underscored this emerging reality. Citing survey data from Splitit, a payments provider, Retail Customer Experience indicated that 44% of Gen Zers use pay later options to rationalize large impulse purchases.

“Gen Z has overextended themselves financially this year and given this cohort’s well known price sensitivity, this is a notable trend,” Splitit CEO Nandan Sheth said in comments attached to the survey results. “As a result, many of these young adults are prioritizing where to spend their money this season and will rely on their favorite pay later options to finance personal splurges, including entertainment and dining out.”

Gen Z May Be Attracted to BNPL Because of Low Barriers to Entry

There may be more to Gen Z’s attraction to BNPL beyond simple convenience at the checkout.

Per Fortune, buy now, pay later is an appealing option to younger consumers — many of whom have lower credit scores or a weaker credit history than their older peers — because companies providing the service offer lower barriers to entry as compared to traditional credit cards. BNPL services only run soft credit checks, and loans and payment histories aren’t reported to credit bureaus.

This can all add up to provide an enticing proposition to younger consumers, but one that is also financially risky.

“Buy now, pay later can be an innovative tool for purchases you’re going to make anyway,” Mark Elliott — chief customer officer at financial services company LendingClub — said, as quoted by Fortune. “The challenge is that it does fuel overspending.”

“The reality is that the increased cost-of-living and inflation have put more people in a situation where they’re already relying on revolving credit. The psychographics of ‘buy now, pay later’ may be different — people don’t think of it as debt — but it is,” Elliott concluded.