Anyone who has lived through several iterations of the “kids these days!” generational wars probably recognizes the rhetoric elders are lobbing at Gen Z for youthful spending choices. The cold brew addiction! The RealReal splurges on Louis Vuitton! The flirtations with crypto! But what separates Gen Z, the cohort born between 1995 and 2011, from millennials and Gen X is an increasingly serious credit card problem. More of them are maxing out their credit limits and burying themselves in debt.

A recent TransUnion study found that 84% of 22-24 year old adults had an active credit card as of 2023, compared to only 61% of the same age millennials in 2013. Additionally, the Federal Reserve Bank of New York found that nearly 1 out of every 7 (15.3%) of Gen Z Americans have maxed out their credit cards, compared to only 12.1% of millennials and 9.6% of Gen Xers.

Here’s what you need to know about why Gen Z is turning to credit cards and how you can help set up the younger generation for success.

Inflation + high interest rates = credit card debt

There are two main drivers of Gen Z’s current level of credit card debt: rampant inflation and the subsequent higher interest rates.

To start, inflation has made financial decisions tougher for everyone in the past few years. Inflation reached its peak in 2021 at an eye-watering annual rate of 7%, with only a minor reprieve in 2022 when it fell to 6.5%. The past two years have seen a 3.4% rate of inflation, which is closer to normal but still far higher than it was pre-pandemic. When housing, groceries, and gas are taking a bigger bite out of your budget than you anticipated, credit cards can help bridge the gap.

But bigger price tags on necessities is not the only problem with inflation. The Fed has also elevated interest rates in an attempt to combat inflation. This means anyone unable to pay off their credit card (like a young Gen Z adult) will carry a balance that’s hit with a higher interest rate, compounding the debt.

For example, a 22-year-old carrying the median credit card balance of $2,834 has a minimum monthly payment of $85. At the current median interest rate of 22.8%, this cardholder would take 4 years and 6 months to pay off their balance, and they would end up paying nearly $1,700 in interest.

For comparison, the median credit card interest rate in 2013 was 12.9%. A cardholder carrying a $2,834 credit card balance back then and making the minimum monthly payment of $85 would have paid off their card in 3 years and 6 months, and only paid $694 in interest.

The job problem

While inflation and interest rates may affect all consumers, Shanté Nicole, founder of Financial Common Cents, has also identified income as a major issue contributing to Gen Z debt.

“It’s harder for young adults to find jobs out of school,” she says. “And their earning potential is a lot different than it was for their parents.”

While low employment among young adults is a perennial problem, this generation came of age during the pandemic. Many Gen Z workers were not only unable to take internships or “starter” jobs during lockdown, but they were also competing with older and more experienced job seekers once COVID precautions were lifted.

Shopping from the comfort of home

One final factor that Nicole sees among young adults is the part social media plays in our consumer culture. Call it Best Life envy. “Many young people are trying to keep up with the lifestyle they see others enjoying on social media,” Nicole explains.

Considering the fact that you don’t have to get out of bed to spend money in the age of smartphones, social influence can be financially dangerous. You are encouraged to spend money by TikTokers using the hottest products as well as perfectly tailored advertisements that stalk you from platform to platform. And each site is happy to remember your credit card information “for your convenience.” This frictionless buying process makes impulsive credit card purchases far too easy.

Helping Gen Z launch

Helping Gen Z young adults get their finances in order is not necessarily easy. To start, there is little anyone can do to help those whose career prospects were set back because they graduated during Covid. However, Nicole has several suggestions for how to help your young adult Gen Z kids, as well as their teenage siblings whose adulthood is just around the corner.

Keep the money conversations open

“Parents often tell their kids to stay out of grown folks’ business when it comes to financial discussions,” Nicole says. But that’s counterproductive. Let your kids into your money talks. When they ask questions you don’t know the answer to, look it up together.

Make it clear that a credit card is a loan

“We don’t think of using a credit card as borrowing money,” Nicole explains. “We just swipe it and don’t recognize that it’s a loan.”

Tapping or swiping a card doesn’t feel like handing over cash, so it’s easy to forget that you are borrowing money. That’s why it’s so important to use the language of loans when talking about credit cards with your kids. When you describe using your credit card at the grocery store as a short-term loan, your children are more likely to internalize the reality of debt.

Explain the importance of good credit

A good credit score can seem unnecessary to teens and young adults, which is why parents need to explain how credit can be used outside of finance. “Your credit score doesn’t just affect your ability to take loans,” says Nicole. “It’s also important for insurance, jobs, getting an apartment, and even security clearance.”

Make sure your kids are also aware of how to get and keep a good credit score. “On-time payment and usage are the two most important factors in your credit score,” Nicole says. Teaching your teens and young adults to consistently pay their bills on time and avoid maxing out their credit limits will help them to achieve and keep a good credit score.

The kids are alright

Gen Z may feel like they are starting off at a disadvantage in adulthood. Not only are they coming of age in a time of high inflation and interest rates, but their job prospects may feel low while spending temptations are high. Empowering your Gen Z kids to ask questions, understand financial consequences, and build credit can help them better navigate the world of credit card debt.