Generational Debt: How Millennials and Gen Z Are Affected

Imagine a young man named Rahul, aged 24, who recently started his first job. He makes a little bit of money at ₹35,000 per month. The sad thing is he has already borrowed a whopping amount of ₹2.5 lakh as a student loan and already carries a credit card balance of ₹50,000.

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He wants to save for the future but feels stuck as most of his salary goes toward paying off debt. Stories like Rahul's reflect the financial struggles faced by Millennials and Gen Z in today’s world. Let’s explore how these two generations are impacted by debt and what causes these challenges.

How Debt Builds Up in Millennials and Gen Z

Millennials: The Burden of Student Loans

For this group called millennials (1981-1996), what really weighs heavily on them is the student loan debt. It's about 40% that are enjoying the privileges of such debts. A millennial borrower is to make payments of about ₹6 lakh on an average as student loans in the year 2024.

Gen Z: Fast-Growing Debt

Gen Z (born 1997-2012) is the generation getting into major debts, primarily through credit cards. A typical 23-year-old has a credit card debt of roughly ₹2.3 lakh in 2023. Many people use credit cards for daily expenditures that actually worsen the debt.

What Causes the Debt Problem?

1. Inflation and Rising Living Costs

Cost-of-living increases have averaged 32% in the past 10 years, even more so for cities. Essential expenses such as rent, grocery bills, and even transport have forced people online for credit cards and loans.

For example, One bedroom flat would cost, say, ₹25,000 because a young professional stays in Hyderabad and 5 years from now they move in from ₹18,000.

2. COVID-19 Pandemic Impact

The pandemic disrupted job markets, especially for those entering the workforce. Millennials faced pay cuts, while Gen Z struggled to find stable jobs.

3. Financial Behavior Differences

Millennials are cautious with money but carry older debts like student loans. Gen Z prioritizes experiences like travel or dining out, even if it means using credit cards for non-essential spending.

How Debt Affects Their Lives

1. Delayed Life Goals

Debt is causing both Millennials and Gen Z to postpone major milestones. A survey shows 78% of Gen Z plans to delay marriage due to financial instability. Millennials, like Riya, often postpone buying a home.

2. Lower Credit Scores

Credit scores below 600 are subprime ones. Almost 25% of Gen Z credit card users hold these subprime scores, making it difficult for them to take loans for cars or homes.

Solutions: Managing Debt Smartly

1. Consolidate Debts

Rahul, from our opening story, opted for a Bill Consolidation Loan to combine his student loan and credit card debts into one monthly payment. This reduced his interest rates and simplified repayment.

Rahul consolidated his debts and saved ₹7500 every month, which he devoted to building an emergency fund.

2. Budgeting and Financial Discipline

Both generations need to create strict budgets. Tracking monthly spending helps in avoiding excess spending.

3. Financial Education

These lessons should be on managing debts, understanding credit ratings, and future planning at schools and workplaces.

Conclusion

Millennials and Gen Z are learning the ropes and adjusting to the realities of a tough economic landscape that is enshrined in a scenario of rising debts and inflation, with changes in cultural attitudes toward spending. Student debts haunt the Millennials while the Gen Z is accumulating debts at a fast rate from credit cards.

Managing this generational debt requires better financial planning, like opting for tools such as Bill Consolidation Loans, and fostering awareness about financial discipline. Be it Rahul or Riya or Kavya, everyone can reach the target of being debt-free if they employ the right strategies.

Remember, every small action such as budgeting or loan consolidation makes a big difference towards building a solid financial future.