Rising Young Adult Credit Usage Offers Opportunity for Banks

Mar 15, 2023

The shifting economic winds require financial institutions (FIs) to consider the opportunities the changing credit ecosystem presents. For FIs, establishing and maintaining wallet share among young adults is complex.

But, despite the growing popularity of embedded finance, student loan uncertainty, and a viral TikTok trend, the opportunity to engage this demographic is there for the taking.

The NY Fed Center for Microeconomic Data recently released the Q4 2022 Household Debt and Credit report. Delinquencies increased across all debt types except student loans, a growing trend after the historically low rate during and following the pandemic.

According to the report 1, in Q4 2022, total household debt increased by 2.4% ($394B), reaching $16.9 trillion – $2.75 trillion higher than in Q4 2019 (pre-pandemic). In total, non-housing balances grew by $126 billion, reaching $4.64T

Household DebtQ4 2022 Household Debt Balances

Credit card

  • $986B ($61 billion increase), surpassing the pre-pandemic high of $927B.
  • Aggregate limits on credit card accounts increased by $88 billion in the fourth quarter and now stand at $4.4 trillion.


  • $1.55T ($28B increase)
  • $186B in newly originated auto loans.

Student loan

  • $1.6T ($21B increase)


  • $11.92T ($254B increase) In 2022, mortgage balances increased by nearly $1T.
  • $498B in newly originated mortgage debt (closer to pre-pandemic volumes).

Household Debt DelinquenciesQ4 2022 Household Debt Delinquencies


  • In Q422, the delinquency rate of all outstanding mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 3.96% 2.
  • At the end of 2022, .23% of all housing units were in foreclosure but remained shy of .36% in 2019 and 2.23% in 2010 3.


In December, 2022, access to auto loan credit declined across channels, and the delinquency transition rate increased by 0.4%1. The auto loan default rate improved, but performance deteriorated, with 5.3% of borrowers 60+ days delinquent – a rate higher than pre-pandemic 4.

  • Auto loan performance at the person level remains slightly healthier than it had just before the pandemic for most age groups, but younger borrowers are struggling relatively more. 8.


  • There was an $88B increase to credit card aggregate limits – now at $4.4 trillion.
  • In the shadow of growing balances, the card delinquency transition rate increased by 0.6%.

Student Loans

Less than 1% of aggregate student debt was seriously delinquent (90+ days) or in default in Q4 2022. It’s important to note that the Fresh Start Act marked $34 billion in delinquent federal student loans as current.

“Once payments on those loans resume later this year under current plans, millions of younger borrowers will add another monthly payment to their debt obligations, potentially driving these delinquency rates even higher.”


– Liberty Street Economics 8


The Fountain of Youth Ebbs and Flows

About 3% of credit card loans to young adult borrowers became seriously delinquent in Q422, surpassing this generation’s pre-pandemic rates. This data, coupled with predictions for further cooling of the economy and the resumption of student loan payments, reinforces the economic fluidity of Gen Z and Millennial consumers and draws attention to their pivot towards credit.

About 3% of credit card loans to young adult borrowers became more than 90 days past due during Q422, compared with 1.7% for those in their 50s and about 1% for those in their 60s and 70s 8.

Cash Stuffing

According to a recent Credello survey 6, younger consumers are returning to cash for budgeting to improve their financial management acumen. Trending on TikTok, “cash stuffing,” a once popular (pre-technology) budgeting tactic, has caught the attention of Gen Zs and Millennials 7. Over half of young adults “routinely use cash stuffing to manage their money, build savings and pay down debt 6.”

Cash stuffers budget by categorically allocating a predetermined amount for variable month-to-month expenses. A recent Cnet article 9 explains that they separate physical dollar bills into envelopes (binders, liquor bottles, etc.) each payday, then put them out of sight. To curb overspending and to reduce reliance on credit cards, they use only the allocated cash at POS; to shift away from instant purchasing, they remove card numbers from phones and shopping websites.

The TakeawayThe Takeaway

The American Bankers Association expects credit conditions to weaken over the coming six months as the economy cools down on the heels of the Fed’s inflation-fighting measures 5. For FIs, in the wake of this prediction is the growing importance of wallet share.

Cash stuffing, loan payment resumption, inflation, rising interest rates and the continued growth of embedded finance present challenges for engaging this sometimes elusive demographic – but also offer growth opportunities.

Gen Zs and Millennials need and want credit – they just want to be smart about it. To balance growth with risk, financial institutions must bolster their screening with alternative data sources, accommodating the thin-file consumers of this generation. Prioritizing tactical deployment of prescreening, cross-selling, and multi-channel marketing campaigns – alongside strategic risk management is also critical.

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