According to a new survey, 63% of Millennials own no credit cards. For this poll, the Millennial generation is defined as those in the United States aged 18 to 29.
The survey, put together by BankRate, attempts to get to the root cause for the lack of penetration of credit cards among this younger demographic, despite the attempts to sell the idea of credit cards to this generation. These attempts mostly come from those older than Millennials. BankRate’s survey points out that each successively older age group is more likely to own multiple credit cards.
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Instead of credit cards, Millennials prefer to use debit cards. Despite all the information that’s available that shows how debit cards are worse that credit cards for active use, credit cards aren’t gaining traction. Banks have also spent the last few years making debit cards more attractive by adding rewards and new consumer protections that approach the offerings of credit cards, yet they tend to fall a little short. And they still don’t provide the benefit of building a credit history, something older Millennials have already discovered as they’ve attempted to finance a car or house purchase with a loan or mortgage.
Millennials are tied economically to the recession. In the development of an adult, the age range currently associated with the Millennial generation is when world and political awareness sets in. For Millennials, this came at a time where the events of the world were defined by the economy. This period of maturity included the Great Recession, the credit crunch, significant penalties for the banking industry, new regulations, and banks behaving badly. It’s no surprise those who came to understand the world during this time are wary of banks and the products they push.
That doesn’t explain why credit cards are shunned while debit cards are praised. After all, debit cards are bank products, as well. There must be an element of distrust of debt, not just the banking industry. And that might come from the recession, too, as Millennials saw their older relatives and friends struggle with debt.
On top of this, there are quite a few loud voices in the media who prefer debit cards over credit cards, and even though the reasoning they preach is often faulty, the message contains an aspect of contrarianism that Millennials, as a group, seem to like.
The survey is missing something obvious. The use of credit cards among different age groups isn’t a comparison that makes a lot of sense. We shouldn’t be comparing the 18 to 29 year-olds with today’s older generations. These can be interesting data, but it can’t be used to prove any hypothesis that might be suggested by the survey other than “younger people use and own credit cards less than older people.” The better comparison would be between the use of credit cards among Millennials today and the use of credit cards among other generations when they were the age of today’s Millennials.
That would result in some clearer conclusions. We do know that Millennials today are often entering the workforce with higher student debt loads than any other previous generation. That could be a reason Millennials are wary of anything that has the potential to increase debt, as credit cards might. Debit cards are marketed much more heavily today. They didn’t even exist when some older generations were as young as today’s Millennials. Some of these facts should be considered when trying to determine why Millennials don’t carry credit cards.
In general, as one gets older, one progresses in one’s career and builds more wealth. With more wealth, people will grow more comfortable using financial tools like credit cards. I would be surprised if the situation with Millennials today is much different than the situation with Generation X, twenty years ago. In the 1990s, Generation X was coming of the age where awareness of politics and the world kicks in. There was a recession in the late 1980s and early 1990s.
This is from an article from the Los Angeles Times in 1995:
By graduation, [Michael Puccini from Chapman University] had a wallet full of plastic and was $3,000 in the hole. Plus he owed $13,000 in student loans. Overwhelmed, he moved back home after a tearful phone conversation with his father.
“I had a lot of fun with credit,” says Puccini, 30, who has found work in Los Angeles as a public relations agent. “But I’m really paying for it. It’s kept me from doing a lot of things.”
More than any other generation before them, today’s young adults are emerging from school and beginning their careers weighed down by a heavy burden of debt. And fresh data suggest this burden is growing. A Southern Californian’s average credit card balance increased 20% from 1993 to 1995, according to the market research firm Claritas Inc. But for those in their 20s, the balance jumped 70%, to $2,159 as of Sept. 30.
These numbers may look small compared to what surveys throw around today, but debt at this level was a significant burden at the time. Generation X hasn’t truly recovered, and are not poised to be able to live in retirement the way investing firms advertise and the way many among the generation prior to the Baby Boomers, the Silent Generation, often appears to be able to afford. Generation X clearly took advantage of credit cards as they were marketed to them, and it may have been to their detriment.
Yes, the use of credit cards did allow Generation X to spur one of the greatest runs in the real estate industry by buying town houses, condominiums, and single family homes before they were able to afford it, but Millennials may see the struggle of Generation X today and be familiar with stories of the struggles of Generation X in the early 1990s. If they are, it would make sense that Millennials would try to avoid these problems by avoiding credit cards.
Millennials are also the most educated, in terms of college matriculation and advanced degrees, so there might be some truth to the idea that Millennials, as a group, believe they are smarter and more aware of the world than earlier generations — or at least, they might believe they are smarter today than other generations were when they were in the 18 to 29 age group. And thus, Millennials could feel comfortable keeping their approach to finances different than those who have come before.
I never like to generalize attitudes across large swaths of Americans, but there are definitely measurable trends, even if one can always find anecdotes that contradict those trends.
Should Millennials get with the program and start using credit cards instead of debit cards? I want to say yes. Credit cards are simply better products for consumers. But it’s not that simple. The same BankRate survey shows that when Millennials do use credit cards, they don’t pay the bills in full ever month. Only 40% do, compared to a larger percentage of older age groups. Again, this should be obvious; Millennials haven’t yet built the financial independence or stability through their careers that older people have built. So there’s a lot more Millennials need to do to take control of their finances besides just switching from a debit card to a credit card.
On the other hand, Millennials are in a position to change the way other Millennials relate to their finances. This has already started. Millennials — or in some cases Generation X representative who seem to be in tune with the needs and desires of Millennials — are changing the financial industry. Generation X put the banks online, but Millennials are inventing new ways to bank. Crowdfunding, person-to-person lending, mobile payments, financial advisory without human advisors, and other new technologies will shape how Millennials deal with their finances. If Millennials want to stick with debit cards rather than credit cards, in time, debit cards or some other technology will grow to contain all the features necessary to most benefit the consumers.
It might take some time, but I trust the Millennials to figure it out. If something doesn’t work to the changing needs of a generation as it gets older, that generation will change the industry. It has already begun to happen.
Updated April 13, 2016 and originally published September 8, 2014.