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January
2020
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Growing Up During Recessionary Times Does Not Suppress Gen Z’s Appetite for Credit

TransUnion study explores Gen Z credit behavior across six global markets

Generation Z consumers—those born in or after 1995—are actively seeking credit despite many of them growing up during severe economic recessions in their respective global markets. A new global TransUnion (NYSE: TRU) study revealed this broad desire to engage with lenders, although the prevalence of activity and type of credit they are pursuing differs when comparing established and emerging markets.

The TransUnion study explored credit activity of Generation Z consumers (also known as Gen Z) in established consumer credit markets including the United States, Canada and Hong Kong, as well as emerging credit markets including Colombia, India and South Africa. The study explored the depersonalized credit data of Gen Z consumers to understand their credit behaviors by country, specifically observing originations, account preferences and balances.

According to the study, there is a relatively large divide in how Gen Z approaches credit in established versus emerging credit markets. While in most established markets more than half of Gen Z are already credit active, the percentages drop precipitously for emerging markets.

“Lending dynamics are complex, as are the demands and needs of consumers across the globe,” said Jason Laky, executive vice president and head of financial services at TransUnion. “While Gen Z are much more credit active in markets such as the U.S. and Canada, we believe the demand is still there for similarly aged consumers in emerging markets. The difference oftentimes is that credit is simply not as readily available in emerging markets, but as consumers build their data identities, it’s clear that many of them will have the opportunity to secure the credit they need and deserve.”

Percentage of Gen Z Population (over 18) that is Credit Active* with Traditional Credit Products

Canada

Colombia

Hong Kong

India

South Africa

United States

63%

19%

49%

6%

28%

66%

*For this study, consumers are considered credit-active when they open a traditional lending product such as a credit card, auto loan, mortgage, personal loan, or student loan.

According to the study, this youngest credit-active generation has a strong appetite for credit despite many of these consumers growing up in difficult economic conditions. In markets such as the U.S. and Canada, Gen Z saw their parents and other family members suffer through bouts of unemployment and challenging economic conditions, especially in the 2008-2011 timeframe, that had not been seen in generations.

However, many of the established countries featured in the study have seen their individual economies thrive in recent years. In the U.S., a stable economy, low unemployment and a favorable regulatory environment have been conducive for Gen Z as they seek and gain access to credit. Other factors such as technological advancements have also come into play.

“Gen Z is the first generation of digital natives, and they have come to expect a seamless consumer experience across all walks of life – including how they access, use and manage credit,” said Laky. “Our belief is that the desire for credit among this generation is significant across the board, and improving economic conditions will likely serve as a springboard for more credit, especially in emerging credit markets. It’s critical for lenders in both emerging and established economies to have the ability to make more informed decisions on prospective customers and earn their trust as well as their business.”

Gen Z v. Millennials in the U.S.

In the U.S., the study also compared the credit activity and performance of Millennials (consumers born between 1980 and 1994) and Gen Z consumers. To have a true “apples to apples” view, TransUnion observed Millennials who were between the ages of 18 and 24 years old in 2012 and Gen Z consumers who were 18 to 24 years old as of 2019, adjusted for risk and age differences. Across traditional credit products, preferences for these two groups were broadly similar; however, a combination of lender supply and consumer demand has caused some differences between generations. The lower rate of unemployment during Gen Z’s young adulthood has resulted in more Gen Z adults joining the workforce rather than enrolling in school. As a result, more Millennials (44%) had a student loan than Gen Z (37%).

Sample Gen Z vs. Millennials: Most Popular Credit Products

(Percentage of Credit-Active Consumers with Each Product Type)

Generation

Auto

Credit Card

Private Label Card

Mortgage

Unsecured Personal Loan

Student Loan

Millennial

16%

34%

24%

2%

3%

44%

Gen Z

23%

41%

20%

2%

4%

37%

While it is often assumed that younger consumers inherently present greater risk to lenders, it is interesting to note that 50% of credit-active Gen Z consumers are prime and above (VantageScore 661+), compared to the 39% of credit-active Millennials who were prime and above at the same age. Even with a less risky credit-active population, Gen Z consumers have benefited from favorable underwriting standards toward non-prime borrowers (VantageScore 660 and below) in both the auto and credit card industries. This underwriting expansion into riskier tiers has driven nearly 10% more credit-active Gen Z consumers to have an auto loan compared to Millennials over the same age period. There has also been an increase of subprime (VantageScore 300-600) bankcard activity for Gen Z, as 23% of subprime consumers have a credit card in comparison to 12% of subprime Millennials.

“The oldest set of Gen Z consumers came of age during an elongated economic expansion and relaxed underwriting environment, which allowed for a comparatively easier entrance into the credit market than their Millennial counterparts,” said Matt Komos, vice president of U.S. research and consulting for TransUnion. “Gen Z has been able to access credit cards and auto loans with greater ease, particularly because lenders have been extending their buy-box into non-prime – which has been beneficial to these Gen Z consumers as they enter the credit market.”

Differing Global Credit Demand

Despite suggestions that credit cards are not as popular with the youngest generation, they continue to be a key entry point and one of the most widely held credit products in most markets studied. At the same time, Gen Z consumers are relatively new-to-credit and have riskier credit profiles than broader populations in their respective markets. As such, lenders typically issue smaller card credit limits to Gen Z consumers in order to manage risk.

While this can lead to higher utilization rates, Gen Z consumers appear to be building healthy credit habits and are managing their credit cards responsibly. In the U.S., 50% of credit-active Gen Z consumers have a credit card with a median balance per consumer of $606. In comparison, 99.8% of Canadian Gen Z credit-active consumers have a credit card and their median balance per consumer is C$ 515 (about $395 in USD).

Popularity of Traditional Credit Products by Region for Gen Z

(Percentage of Credit-Active Consumers with Each Product Type)

Credit Product

Canada

Colombia

Hong Kong

India

South Africa

United States

Credit Card

99.8%

32%

91%

11%

5%

50%

Student Loan

28%

22%

N/A*

8%

N/A*

39%

Auto

Loan

5%

0.6%

0.1%

4%

2%

25%

Unsecured Personal Loan

16%

16%

5%

6%

8%**

4%

* Reporting of student loans by lenders in these countries is varied.

** Personal loans issued by non-bank lenders.

The types of credit products Gen Z consumers obtain tend to differ by market. The absence of heavily-penetrated card markets in developing countries has led to lower rates of credit card participation among Gen Z borrowers. As such, different products may serve as the entry points to credit. In South Africa, just 5% of credit-active Gen Z consumers have a credit card – instead, credit issued by clothing and apparel retailers is the most widely held product at 66%. In India, the most popular product for Gen Z consumers is a two-wheeler loan, with 21% market penetration, while only 11% of Gen Z borrowers have a credit card.

“In emerging markets, lenders may be more conservative with extending traditional credit products to Gen Z, as those consumers may not yet have the credit histories and track records those lenders use to assess and manage risk,” said Charlie Wise, vice president of international research and consulting at TransUnion. “We have seen that the use of expanded data sets and advanced analytic techniques can help lenders better understand the risk profiles of these younger borrowers and identify ways to engage them in a mutually profitable manner. Lenders that incorporate trended credit and alternative data can gain a better understanding of the specific risk profiles of Gen Z and as a result, are broadly able to provide more consumers with access to traditional credit products. The ability to ensure each consumer is reliably and safely represented in the marketplace will be critical for companies that want to thrive off the continued growth of Gen Z borrowers in the markets we studied.”

To learn more about the generational credit trends in global emerging and established markets, please access TransUnion's Gen Z Global Report.

About TransUnion (NYSE: TRU)

TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.®

A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.

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