California Millennials Struggle with Rising Debt Delinquencies Amid Economic Challenges

As inflation and interest rates continue to rise, California is experiencing increasing financial strain, particularly among millennials. Data from the California Policy Lab at UC Berkeley reveals that millennials, aged 28 to 43, are facing challenges in managing their debts, in contrast to the common belief that they are more averse to debt and better at saving compared to previous generations.

Rising Delinquency Rates

In the first quarter, 7.6% of millennial borrowers were at least 30 days late in making monthly payments on their credit cards, auto loans, and other debts. This rate is higher than that of Gen X (6%), Gen Z (5.5%), and boomers (3.3%). Moreover, the overall loan delinquency rate among millennials has surpassed pre-pandemic levels, causing concerns among economists, especially with the end of the student loan repayment pause.

Impact of High Inflation and Interest Rates

The prolonged period of high inflation and interest rates has affected consumer spending, despite the nation's unemployment rate holding steady at 3.9% in April. In contrast, California's employment situation has been weaker, with the state's unemployment rate reaching 5.3% in the last month, the highest in the country. This reflects weaknesses in key sectors such as entertainment, high tech, and business and professional services. Additionally, wage growth in California has slowed more than the national average and is now below the rate of inflation, leading to a decrease in workers' purchasing power.

Increasing Debt and Financial Pressures

Although foreclosures and personal bankruptcies remain low by historical standards, consumers in California and across the country have been taking on more debt, including credit card borrowing. The rising 30-day delinquencies serve as an early warning sign of potential financial trouble ahead, raising concerns about the broader economy.

Challenges for Millennials

Despite being the best-educated generation and the first to grow up in the digital age, millennials have faced financial setbacks since entering their adult lives during the Great Recession. With higher home mortgage rates and soaring home prices, many millennials are unable to afford homes and are experiencing the strain of higher rents and essential service costs. This financial pressure is further compounded for parents living with children under age 18, who are disproportionately millennials, as they navigate expenses related to housing, transportation, and childcare amid the current inflationary environment.