Gen Z's Credit Scores Crash: Student Loans, Rent, and 'Doom Spending' Take a Devastating Toll

Gen Z's Credit Scores Plummet: Student Loans, Rent, and 'Doom Spending' Take Toll In a shocking turn of events, Gen Z's credit scores have suffered the biggest drop of any generation in years, according to a new report from FICO. The average FICO score for young consumers slipped three points to 676, a staggering 39 points lower than the national average of 715. This decline is a red flag not only for young consumers but also for the health of the broader credit market, said Erin Stillwell, head of payments at Globant. "The fact that Gen Z's credit scores are dropping so sharply is a concern for the entire industry," she added. According to FICO, student loan payments, inflation, and social-media-fueled spending are the primary culprits behind this decline. The report found that 62% of Gen Z consumers have outstanding student loans, with an average balance of $31,000. This debt burden is weighing heavily on their credit scores. The rise of "doom spending" – a phenomenon where individuals spend money to cope with anxiety and uncertainty – has also contributed to the decline. Social media platforms like Instagram and TikTok are exacerbating this trend, as users feel pressure to keep up with appearances and maintain a perfect online image. Gen Z's financial footing is being put to the test as they await their share of the $124 trillion Great Wealth Transfer from their baby boomer relatives. Typically, younger consumers see the fastest year-over-year gains in credit scores as they build their financial histories. However, this year has been an exception, with Gen Z experiencing a significant decline. The FICO report highlights the need for young consumers to take control of their finances and develop healthy spending habits. "It's essential for Gen Z to understand that credit scores are not just a number; they're a reflection of their financial responsibility," said Stillwell. As the situation continues to unfold, experts warn that this decline could have long-term consequences for Gen Z's financial stability. With student loan debt and inflation showing no signs of abating, it remains to be seen how young consumers will recover from this setback. Background: Gen Z, born between 1997 and 2012, has been facing unique financial challenges in recent years. The COVID-19 pandemic accelerated the rise of remote work, leading to increased expenses for housing, food, and other necessities. Social media platforms have also played a significant role in shaping Gen Z's spending habits. Additional Perspectives: Financial experts warn that this decline could have far-reaching consequences for the broader economy. "If Gen Z's credit scores continue to drop, it could lead to reduced access to credit and higher interest rates," said David Bach, author of "The Automatic Millionaire." Current Status and Next Developments: As the situation continues to unfold, experts will be closely monitoring Gen Z's financial progress. With student loan debt and inflation showing no signs of abating, it remains to be seen how young consumers will recover from this setback. In a statement, FICO emphasized its commitment to providing accurate and timely credit information to help consumers navigate these challenges. "We're committed to supporting Gen Z as they build their financial futures," said the company's spokesperson. *Reporting by Fortune.*