Using “it” is seen as demeaning– you said yourself that it’s for objects and animals, so using this for a person equates them with one of those.
The singular “they” is gender-neutral and respective of a person’s humanity. IMO it can be slightly confusing because it also refers to a group of people and/or other things, but it’s the best we’ve got for now.
It can be seen as less than a person because of precisely what you said about “it” being used to talk about singular objects and animals. Many people like to distinguish themselves from nonhuman things, and so wish to use a more unique pronoun. “They” is also already a part of English, so using “They” as a new non-gendered pronoun is not culturally a big stretch.
*Edit: As I’ve learned through the comments, the usage of “They” in a non-gendered context is not new and has historical precedent.
The word they has always been gender agnostic in the singular form and was used when gender was uncertain. Eg. “A robber broke into the community hall last night. They stole the microwave and $50 dollars cash”.
The current use of ‘they’ to respect people who consider themselves ungendered is just an extension of that.
“It” generally refers to something inanimate or, at least, a lower form of life (animals, bugs, etc).
In the last few decades “it” was used (somewhat derisively) to refer to crossdressers/trans people but, due to the association with “less than human,” that mostly fell out of favor.
As a rule, if you’d say “something” it’s an “it.” If you’d say “someone” it’s a “they.” Advanced Level: Of course, here, when I said “it’s” it wasn’t referring to the “someone” it was referring to “the word” which is an elided subject. English is hell.
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