Debt Could Mark the Spot for Advisors Wanting To Connect With Gen Z

When it comes to fostering new relationships and nurturing existing ones with various age groups, advisors need angles and plans of attack and those ideas aren’t linear across generations.

When it comes to enhancing connections with Gen Z – the generation after millennials – advisors have some interesting starting from which to choose, including debt reduction. Data confirm that in the U.S., household debt, which is defined as credit card, mortgage, student loan, medical loan, auto lease and auto loan obligations, is on the rise.

“Between October and December 2022, average total overall debt among Credit Karma members was $49,454, an increase of 1.96% compared to an average of $48,505 from March through May 2022. The median debt in the final quarter of 2022 was $11,223, which means that some folks had significantly higher amounts of debt that skewed the average upward,” according to Credit Karma.

Not every American with some form of debt is a Credit Karma user, meaning the aforementioned numbers could well be higher. However, the fintech company’s insight is relevant to advisors working with Gen Z because that’s tech savvy group – many of whom are likely Credit Karma users.

Gen Z Needs Debt Help

Acknowledging that financial advisors are not credit counselors, one way for advisors to better connect with prospective clients, particularly younger clients, is to discuss debt and strategies for avoiding and getting out of it. And yes, these conversations can and should include going beyond student loan obligations. Credit Karma data confirm Gen Z need help on this front.

“As generational age increased, the percent change of debt decreased. That means that Gen Z saw the largest percent increase in debt even though their overall average debt was much lower than other generations,” according to the survey.

Interestingly, the Credit Karma research confirms that as credit scores increase, so consumers’ outstanding debt. Mortgages are likely a contributing factor in that scenario, but when it comes to Gen Z, many members of that group aren’t yet homeowners. That implies many are indulging, leveraging strong credit scores, rather than planning for retirement or investing/saving for homes and emergency funds.

There are also geographic implications for advisors to be mindful. Those with practices in California may want to consider to upping debt counseling offerings because, according to Credit Karma, six of the most indebted cities in the U.S. are in the Golden State. That includes major metro areas San Francisco (1) and San Diego (8).

That could be the result of some of the highest home prices in the country (it probably is), but that data also say clients in those regions may well need help when it comes to setting aside money for investing.

More Gen Z-Specific Issues

It might seem academic, but another area in which advisors can help Gen Z clients is with the basic premise of tending to debt in a timely fashion.

Unfortunately, data indicate Gen Z is the only generation that experienced an increase in past due accounts during the timeframe of the most recent Credit Karma survey. All other generations reduced their percentages of past due accounts.

Gen Z also notched an alarming percentage increase in terms of number of credit inquiries, indicating they’re seeking credit and many not realize hard pulls are damaging to their scores. Bottom line: Advisors have plenty of room with which to help Gen Z clients get right when it comes to credit and debt and that could pave the way for longer-lasting relationships.

Related: Examining the Importance of 401(K) Consistency