Travel prices remain high. According to data from the U.S. Bureau of Labor Statistics, airfares in February were 27% more expensive than they were a year ago. Rental car prices, which soared during the pandemic, are still high. They’re 37% more expensive in February 2019 than the same month last year.
Despite the higher cost of travel, younger Americans are still eager to get on the road and fly this year.
According to The Vacationer’s March survey, 87% of 18 to 29-year olds and 90% of 30 to 44-year olds plan to travel this summer. The younger generation isn’t listening to the warnings that the economy may be slowing down.
Dylan Snowden is a financial advisor. “When I talk to people, they don’t budget,” he says. “Most people will only think about flights and hotels, but they won’t consider that they have to feed themselves 3 times a day .”
These vacationers could be in for a financial storm if they ignore the larger economic trends.
In addition to inflation, savings have decreased, debt has increased, and the economy may be heading for a downturn. The fact that student loan repayments could resume this year makes the situation even worse for those aged under 40.
Could this be a year when “revenge” travel resulting from pandemics turns into “regret” travel?
Vacationers who are facing high travel expenses have two options: either cut back on costs or take out debt. It seems that young Americans are choosing to take on debt.
According to a report by Credit Karma in January 2023, Generation Z accumulated 6% more debt on their credit cards between the first half and second half of 2022. Millennials accrued only 5%. Baby boomers only added 2% to their credit card debt during the same time period.
Snowden says that because people do not budget, they underestimate the size of their debt. They don’t go on these trips thinking they will end up $7,000 in the hole, but they do.
Younger Americans struggle to repay these debts. According to a report published by The Federal Reserve Bank of New York in 2023, the rate of delinquencies on credit cards has increased significantly among Americans aged 20 and 30. It is now higher than pre-pandemic levels. Delinquency rates for older Americans have remained fairly flat.
The rise of Buy Now, Pay Later Services
The rise of the “buy now and pay later” travel expense model is another factor that could lead to more expensive travel. These services allow you to pay in installments and ease sticker shock on airfare and hotel costs. However, they also create more debt.
Snowden says that someone doesn’t just sign up for Klarna once. He cites a popular service which allows you to buy now and pay later. “They will do it multiple times, so the debt will increase .”
Younger consumers have shown a particular interest in the concept of buy now and pay later. A Harris Poll survey from August 2022 found that 44% of Gen Z and 50% of millennials had used these services within the past 12 months. This compares to 25% of Generation X, and only 14% of baby-boomers.
Travelers could be hit hard by mounting debt and deferred payment, particularly as layoffs rise and some economists predict a recession in the second half of this year. Another $1 trillion could be dropped by student loans.
Student loans loom
According to data collected by the Federal Student Aid Office of the U.S. Department of Education in 2023, the average student loan debt of borrowers aged 35-49 years is $43,280 dollars and for those 25-34 years old it’s $32,750. These loans haven’t had a significant impact on finances, because the payment pause from pandemic era is still in place.
Snowden says that it’s been a long time since people had to deal with this issue. It’s hard to believe that the program could start up again .”
Those payments may resume in the near future — perhaps by late summer. The combination of mounting debt, a weakening economy, and increased student loans payments could lead to a perfect financial storm.
Save now, vacation later
Are young travelers doomed to a life of misery? Not necessarily. Some people may still be using up their savings surpluses. The labor market is strong and this boosts incomes.
Experts advise young travelers to take a close look at their finances and avoid accumulating more debt by booking another trip this year.
Snowden urges, “Save now and vacation later.” You’ll be able to enjoy your vacation without worrying about the bill when you get home. You should feel good before, during and after your vacation.
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