Generation Z and Debt: The Rise of Unpaid Bills and Collection Agencies

Almost half of the people who can be counted as Generation Z have received a reminder because a bill was not paid. Around a quarter of those surveyed have already received mail from a collection agency.

This is the result of a representative study by Pair Finance and the Fresenius Hochschule, which examined how this generation deals with the issues of debt and debt collection. 1,000 Germans were interviewed, 291 of whom were adult members of Generation Z.

The most common reason for the missed payment was simply that the open invoice was forgotten (40 percent). At least 16 percent simply didn’t have the money to pay their bills.

However, Gen Z is not ashamed of the topic: When asked “Would you tell a friend that you were contacted by a debt collection agency?”, two-thirds of Gen Z answered “yes” – only around a quarter would rather hide the debt.

Shopping up to the mountain of debt is even a Tiktok trend: On the social media channel there are videos under the hashtag #KlarnaSchulden in which people openly report about their unpaid bills and the misery in their accounts.

Adolescents and young adults often take advantage of an offer that allows them to pay later. “Buy now, pay later” (BNPL) is the name of the payment option that large online payment providers such as Paypal or Klarna offer as standard, but many online shops have now also integrated this payment option themselves.

But for Gen Z, the convenience of deferring payments also poses the risk of indebtedness. After all, paying the bill with a delay encourages impulsive purchase decisions that you actually can’t afford.

Generation Z speaks more openly about collection experiences than previous generations, says Minou Goetze, professor of decision psychology at Fresenius University in Hamburg and head of the study. However, she also warns: “Starting debt early can lead to long-term financial problems and a higher risk of debt over the course of a lifetime.” The lower repayment rates can also have a negative impact on the economy.

Consumer advocates have long warned against the BNPL payments. The crux: For amounts under 200 euros, there is no credit check. The assessment of whether one can afford the “purchase on credit” must therefore be made by the buyer himself. Young people in particular would fall into a debt trap because they easily lose track of their debts with the payment option.

Then there are the high fees for micro-loans and dunning. The payment provider Klarna tried to take countermeasures last year and, among other things, abolished so-called revolving loans, for which there is no end date for the due date of the amounts. So the repayment can no longer be postponed indefinitely and a high mountain of debt can be accumulated.

How common BNPL payments really are among Gen Z, the Schufa has in their Youth Finance Monitor 2022 examined. According to this, 16 percent of those surveyed use “Buy Now, Pay Later” offers for every second purchase, ten percent for every third purchase and four percent for about every fourth time. With every purchase on the Internet, however, only very few young people and young adults use the option of paying later (nine percent).

According to the Schufa study, the majority of teenagers and young adults pay their bills on time. Young adults with lower disposable income tend to miss the payment deadline.