A Blog by Jonathan Low


Feb 14, 2015

Fewer Millennials Carrying Credit Cards

No credit cards! How do you even function these days?

Well, it turns out that a majority of Millennials get along just fine. And their aversion is based on life experience.

Millennials came of age during the financial crisis and great recession. They saw their families struggle, often with too much debt. Many lived to see their parents lose the homes in which they were growing up at the time.

They also became eligible for credit cards at a time when financial institutions were being notably parsimonious about when and to whom they were extending credit, particularly in card form and especially to people who had no credit history.

The result is that by necessity and, in some instances, by force, they had to explore alternatives. Given their dependence on the internet, where paying with cards is required, many use services like PayPal or, for almost everything, debit cards. The advantage of the latter is that they force the owner to ration and budget.

But even as the economy improves the habits of a lifetime may cause this generation to avoid both the opportunities and mistakes of their predecessors. And that may not be at all bad for anyone. JL

Jeanine Skowronski reports in Bankrate:

A whopping 63 percent of millennials (ages 18 to 29) don't have a credit card, according to a survey.,Comparatively, only 35 percent of adults 30 and over don't have credit cards.

Twenty-seven-year-old Omaha, Nebraska, resident Erin Duffy has never had -- or even wanted -- a credit card.
"I've been able to get along without it," she says, attributing the choice to ambivalence and a wariness of plastic her parents fostered in her during her formative years. "I've liked being able to pay for things as I go, not having to worry about missing a bill."
Duffy's decision to live without credit cards is more common than you may think. A whopping 63 percent of millennials (ages 18 to 29) don't have a credit card, according to a survey commissioned by Bankrate and compiled by Princeton Survey Research Associates International.
Comparatively, only 35 percent of adults 30 and over don't have credit cards.
Created with Highcharts 3.0.7Millennials: How many major credit cards do you have?Note: Millennials are people age 18 to 29 years old.63%23%6%2%None1 card2 cards3 cardsSource: Bankrate August 2014 Financial Security Index
There are, admittedly, external factors influencing the statistics. An April 2014 Gallup poll found Americans' reliance on credit cards, in general, has declined steadily since the Great Recession. Moreover, the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or CARD Act, made it harder for anyone under 21 to get a credit card.
There's also a more straightforward reason why a majority of millennials aren't carrying the payment method: Many, like Duffy, just don't want credit cards.
Created with Highcharts 3.0.7Percent of consumers whocarry 2 credit cards6 % % % % %13 % % % % %18 % % % % %21 %Ages 18-2930-4950-6465+Source: Bankrate August 2014 Financial Security Index
"I don't really feel like there's a need for one in the way I live my life," says Melissa Pileiro, a 24-year-old resident of Vineland, New Jersey. "The idea with a credit card is you're essentially putting money down that you don't have."
Like many members of her demographic, Pileiro is perfectly content with her debit card, a payment method whose existence has eaten into the credit card's market share.
Debit "eliminates that convenience advantage" credit cards previously enjoyed, says Eric Lindeen, director of marketing at Zoot Enterprises, since traditional or prepaid debit cards are just as easy to use for making purchases or paying bills online.

Debt-adverse, not credit-averse

New payment methods aren't the sole reason millennials have been turned off of credit cards.
Millennials "grew up in a world where the economy was tanking," says David Pommerehn, senior counsel with the Consumer Bankers Association. "There was great concern about jobs and debts and paying off bills."
At the same time, college costs -- and subsequently student loans -- have ballooned. According to the Project for Student Debt, student debt increased an average of 6 percent each year from 2008 to 2012, with college graduates from 2012 having an average student loan debt of $29,400.
"When you look at that and the implications of the ability to repay ... the idea of having a credit card (is) far less valuable," says Lindeen of credit solutions provider Zoot Enterprises. "It's not so much (that millennials are) anti-credit card, but it's more the risk of debt" they fear.
Created with Highcharts 3.0.7Percent of consumers whopay off entire credit card billeach month40 % % %53 %Ages 18-2930+Source: Bankrate August 2014 Financial Security Index
This fear isn't exactly unfounded. Bankrate's survey found that millennials who do have credit cards aren't as good at paying down their bills as other demographic groups. Only 40 percent of people ages 18 to 29 pay off their balances in full each month, compared with 53 percent of adults 30 and over. Additionally, 18- to 29-year-olds were most likely to often miss payments completely.
Given this proclivity, it's easy to see why many millennials are avoiding the payment entirely.
"It's a relief to not deal with paying a credit card bill every month, especially when I'm just beginning to enter the not-so-wonderful world of repaying student loans," says Jamie Primeau, a 23-year-old resident of Middlesex, New Jersey. "Basically it's one less thing to worry about."

The downsides of icing out credit cards

But the rejection of credit cards could cause problems for millennials down the road. The payment method is one of the quicker ways to build a strong credit score, says Rod Griffin, director of public education at credit bureau Experian.
And a strong credit score "matters more in this generation than it did in past generations," says Bill Pratt, author of "Extra Credit: The 7 Things Every College Student Needs to Know About Credit, Debt & Ca$h," because "it's used for so many things."
Good scores, for instance, qualify a consumer for insurance policies, cellphone plans and even certain employment opportunities. They are also the key to securing home, auto and other loans at affordable rates.

Allen Walton, a 26-year-old from Dallas, found this out the hard way when he tried to borrow $5,000 to buy a car two years ago, sans credit history.
"I couldn't get any loans," he says, even though he had $30,000 in his bank account and, at the time, was making $60,000 a year. Walton, who had avoided credit cards in an effort to stay frugal, ended up having to a get a loan through the auto dealership.
"They made me print out my entire banking history for the past 24 months," he says. They also required him to buy an extended warranty in order to get a 6.7 percent interest rate.
Carly Romalino, a 29-year-old resident of Mantua, New Jersey, who doesn't use credit cards because she ran up a balance on one in college, had her search for a used car loan end "with a big, fat, embarrassing denial.
"In my late 20s, I hadn't built up enough credit to qualify," she says. Ultimately, to finance the purchase, she "sold one car (and) used that money to buy another from a family member."
Walton and Romalino are likely not the only millennials who've had to jump through hoops for less-than-stellar financing. According to Experian, the average VantageScore for millennials is 628, which lenders largely consider subprime. (Baby boomers and Generation Xers have an average VantageScore of 700 and 653, respectively.)
Millennials "have to understand that it costs you money not to use credit just as it costs you money to use credit," says Mike Sullivan, director of education at nonprofit credit and debt counseling agency Take Charge America, because low credit scores or no credit scores won't qualify for low loan rates.


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