The way people approach debt has changed dramatically ever since COVID-19 hit — and so have their financial priorities.
With layoffs, pay cuts, and furloughs adding to the mounting debt, many people have been hit financially for the last two years. So how are each of the generations coping with the debt and managing their finances? Let’s find out.
Baby Boomers – The Financially Secure
Baby Boomers are one of the most financially secure generations in today’s economy.
According to a new survey among 9000 Americans, Baby Boomers are less likely to experience financial insecurity than younger generations. In fact, COVID-19 has negatively impacted the finances of only 16% of the Baby Boomers compared to one-third of the millennials and Gen Z.
With their retirement looming, many Baby Boomers aren’t worried much about their finances like younger generations. But that doesn’t mean they don’t have debt. In fact, the average Baby Boomer has around $97,290 in debt — second-highest to Gen X.
Although Baby Boomers may have more debt than young people, they are also at a stage in life where they own their own homes or are on their way to paying off all of their mortgages. Also, the older Baby Boomers above 65 years have health benefits like Medicare which further adds to their financial security.
But the impact that COVID-19 has on Baby Boomers is not limited only to their retirement plans and financial situations. This is because 1 in 4 Baby Boomers have been pitching in to help their children financially. So while the majority of the Baby Boomers are financially stable enough to pay off their debts, taking on their children’s financial woes can add to the strain.
Gen X – The Paradox
Commonly known as the ‘middle child’ of the generations, Gen X is facing some unique challenges in the wake of the COVID-19 pandemic.
Gen Xers are at a point in their lives where they’re making higher salaries than before but aren’t ready to retire. Their income potential is high, but their expenses are also high. The Gen X household earns an average of $106,000, more than any other generation household. On the other hand, they also have more debt than other generations, which sits at an average of $140,643.
This paradoxical situation has threatened the financial security of Gen X. It has shifted their priority to short-term financial goals, like paying off their everyday bills (33%), while only 10% prioritized their credit card debts, according to a study published by the Society of Actuaries in 2021. While this may seem a sensible solution in the short term, it can prove fatal in the long term if the Gen Xers let their debts mount.
Millennials – The Financially Insecure
The last year has been a tumultuous one for Millennials, who have had to navigate the effects of COVID-19 on their financial lives. While Millennials were performing well in their careers and climbing the corporate ladder, the COVID-19 pandemic brought job losses and wage cuts leading to major financial strain.
Among the Millennials, 27% have suffered from a pay cut, while 11% lost their jobs during the pandemic. This has severely impacted the millennials, with many struggling with debt from student loans. This is why 60% of Millennials are experiencing more financial insecurity than any other generation.
Millennials have also taken on more debt for housing and other expenses and are facing the brunt of the situation. About half of the millennials say that these debts have complicated their finances, and 27% say that the COVID-19 pandemic negatively impacted their debt level.
The problem is that while these loans may seem like a burden now, Millennials, as a go-getter generation, will eventually find a way to recover — which means they’ll end up paying off those loans over time anyway. It’s just not clear how long it will take to materialize or how much interest will accrue along the way.
Gen Z – The Early Strugglers
Gen Z is those unfortunate ones who graduated from their colleges just before or during the pandemic. This has complicated the lives of Gen Z, who are struggling to navigate the job market with massive student loans.
Before the pandemic, Gen Z was graduating from college just as the economy was beginning to pick up steam. They were entering the workforce right when businesses needed to hire, and many students found themselves with multiple job offers with high pay packages. But the pandemic has put a damper on the start of their careers, with 23% of Gen Zers laid off and 26% receiving pay cuts or losing their income.
The only saving grace here is that Gen Zers can rely on their parents for financial support, with 26% moving back home and 37% receiving some financial assistance from their parents. But the surprising thing to note here is that Gen Zers have the lowest debt average of just $16,043.
While the debt of Gen Z is low, almost 64% of Gen Zers are prioritizing their emergency savings over paying the debt (30%), according to a recent survey by Bankrate in 2022. While Gen Zers are saving up to build up their finances for future emergencies, letting their debt grow would seriously impact their credit scores and ability to obtain loans.
What Does It Mean for the Lenders?
It’s challenging for the lenders to collect on the debts because their customers can’t pay their bills or prioritize paying for something else over settling their debts. This is why many are getting the help of debt collection agencies to focus on the core business tasks while the agencies collect the debts.
At Capital Recovery, we understand how much the pandemic has impacted the financial situation of many people. Our goal is to work with them to figure out a plan to settle their debts and regain their financial stability. We help recover healthcare, commercial, and insurance account debts in the most ethical and respectable way. Call us now at 470-297-1120 to learn how we can help you.