Drowning in Debt: As Gen Z Struggles, How Do We Prepare Generation Alpha?

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Debt is a reality for most Americans. It is something we all try to avoid, but not many can succeed in living life debt-free. 

For those of us that are parents, we’re not just worrying about our own debt but about the debt or potential debt of our children. College-aged kids are already in the thick of it, and for our teens and tweens, financial responsibility is right around the corner. The statistics regarding Generation Z and debt are alarming, and should be kept in mind as we look at launching the upcoming Generation Alpha.

An Experian study took a deep dive into debt and looked at total average debt across multiple categories, comparing data between 2020 and 2021. This study found that the average individual has $96,371 in debt.

In the same time period, the average debt for a member of Generation Z (using data from ages 18-24) was $20,803. Just out of college or a handful of years into the workforce, and our kids have an average debt of over twenty thousand dollars. 

And here’s where it gets really scary. For the average individual across all age groups, debt had risen 5.4%. But between those same two years, the debt increase experienced specifically by Gen Z was 29.7%. The average 18-24 year old had almost 30% more debt in 2021 than they did in 2020.

“Debt is like any other trap, easy enough to get into, but hard enough to get out of.” — Henry Wheeler Shaw

It’s More Than Just the Student Debt Crisis

The Experian study also looked at where that debt was accrued. For Gen Z:

  • Average credit card debt was $2,282
  • Average student loan debt was $18,878
  • Average auto loan debt was $17,241
  • Average personal loan debt was $6,658

The many “firsts” that Gen Z are going through as they reach young adulthood and begin to set up independent lives really add up — first car, first apartment, and college matriculation. The current average price for a used car is $33,000. The average monthly rent for a one-bedroom apartment is $1,129, and is much more than that in major metropolitan areas. The average cost of college, including books, supplies and daily living expenses is $25,707 for an in-state student at a public school.

So, where will all of this money come from? With that debt rate, income is clearly not enough. Gen Z can’t afford the things they need and want, and have been willing to go into debt to have them. Being an adult often means having to assess options and make less-than-ideal choices. But do our kids understand the realities of the world they face?

“Growing up happens when you start having things you look back on and wish you could change.” — Cassandra Clare

Preparing for Life After College

A Clever Real Estate survey of 1000 undergraduates pursuing bachelor’s degrees examined just this question. They took a look at what current college students expect to make in their first job out of college, and the expectations did not meet the reality. On average, the students expected a salary of $60,000 at their first job, when the average starting salary for college graduates is $47,000.

So when we look at the available data, we see that today’s 18-24 year olds already have tens of thousands of dollars of debt, and will not have the salary that they are expecting in order to pay off that debt. Or to fund their lives so that they do not assume more debt. How will they manage this over the long term?

As I’ve written before, I have personal experience with these stressors at that age. The combination of easy accessibility of credit, financial peer pressure, and no clear understanding of financial management had me over my head in debt before I was out of college. And it didn’t stop there. Being able to have what I wanted when I wanted it at the wave of a card became a lifestyle — one I couldn’t fund. I became a compulsive shopper and credit card abuser, and it took working multiple jobs for many years to even begin to get out from under the debt. 

“Chains of habit are too light to be felt until they are too heavy to be broken.” — Warren Buffet

So what can parents do so that their kids don’t have to learn this same lesson the hard way? Providing them with money isn’t an option for many. Taking on the debt themselves isn’t usually a great idea either — after all, parents of young adults need to be considering retirement needs. Because of things like longer life expectancy, fewer jobs with pensions, and social security uncertainties, saving for retirement needs to start earlier and be better funded than ever before.

How to Stay Out of Debt

The best thing we can do for our kids is give them a strong foundation in money management. Most schools don’t cover these topics in depth, and many parents don’t have the time or expertise to teach them in a systematic way. Without a solid understanding of making, saving, and investing money, our kids are likely to end up struggling with debt. And while debt may not be 100% avoidable, it can be approached in a responsible way.

My story has a happy ending. I became a teacher, and through my experience of understanding and paying off my debt, I gained a passion for teaching teens the skills they would need for a lifetime of financial success. That success is not limited to avoiding debt — it encompasses a healthy money mindset as well as earning, saving, spending and investing strategies.

I’ve built a course that breaks all of these skills down into understandable and manageable steps that any teen can take. Wealth Building Academy for Teens consists of four self-paced modules that can be taken individually or together as part of a full financial literacy program. When purchased together, you’ll save 25% — there’s a sound financial decision right off the bat!

I feel strongly about giving my child the information and skills they’ll need to not only avoid the debt trap that I fell into, but to navigate adulthood with a solid financial foundation. If you have any questions about how my course can help your child do the same, reach out to me at Lori@WealthBuildingTeens.com

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