Millennials and credit card use

[YellowBanana]

Love this post, enjoy reading all the responses!!

[Anonymous]

>Could be.  I just don't know many millenials who are interested in, or even know or understand the churning/travel hacking process.  Other than the ones who post here and likeminded credit forums.

The millennials I know who do have disposable income often do engage in those activities. It's really not rocket science: if you have more money you are more likely to spend more, travel more, and have knowledge of and use financial instruments. That applies to all age groups.

[Anonymous]

I'm 19, attending college. I've found credit cards to be amazingly useful when I educated myself about them and how I could make them work for me. I used the 90 day extended return on my BCE for a motherboard I bought but wasn't satisfied with. I've earned several hundred dollars worth of rewards in the short time I've been carrying them as well. When I ask my friends why they don't have credit cards, some say they don't know much about them, others are scared of the potential of getting in over their heads in debt. A specific example my friend gave me was that when you use a debit card, you'll never have to worry about overspending because your purchase will simply decline. Having a limited income can make it hard to pay in full every month because it's easy to use credit to bolster (sometimes) necessary purchases you wouldn't otherwise be able to make. Once you start dipping into debt, your income has to shift towards paying it off and less towards the expenses you previously have. I feel I've been pretty successful with my credit journey thus far because I've disciplined myself but I understand why my peers are so intimidated by it. I'd love to hear other stories from people closer to my age as well!

[Anonymous]

I don't know if it's been mentioned yet, buy it became illegal to market credit card within 1000 feet of college campuses. Consequently, CC acquisition rates plummeted among teens and young adults. I definitely 'discovered' credit cards on accident. I probably would've had one way earlier had there been booths on campus. I

[ForumPheen]

Millennial as well here.

There are 2 glaring reasons why many millenials do not possess or despise credit. One is the ignorance surrounding credit health and credit prosperity, which in turn has left distrust or anxiety. The second is the distrust that stemmed from the lender predatory days of the 90s and early 2000s, when they would set up long tables outside cafeterias, campus classes and libraries with cool knick knacks just for signing up for a credit card. The combination of this lure, and the miseducation of credit, led to students maxing, defaulting, and hiding for years. The road to recovery was just as enduring.

It all starts at a young age, and if there was a way to teach students by providing Credit 101 classes in high schools and colleges, we would see a paradigm shift in our approach to credit.

Last point. The most unsettling thing to me above all, however, is how my peers view long term retirement, investing, and savings, as if it is a concern for the elderly. I know too few that save, whether they have credit or not, and know too many that do not grasp the parallels between credit and retirement savings. (Health insurance also.)

But I digress. I continue to try and educate when I can, and offer my advice when asked among my peers at work and in life.

[Aahz]

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@ForumPheen wrote:
Last point. The most unsettling thing to me above all, however, is how my peers view long term retirement, investing, and savings, as if it is a concern for the elderly. I know too few that save, whether they have credit or not, and know too many that do not grasp the parallels between credit and retirement savings. (Health insurance also.)

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This is simply a factor of youth and is not unique to millenials.  I can personally attest to the same being true amongst Gen Xers when we were young, and history shows the same was true for the Baby Boomers.

[Anonymous]

23 years young here and I noticed the very same thing amongst my peers. Majority of my friends/colleagues shun credit cards voicing their main reasoning to "I will get carried away"...yet, they use their debit card for EVERY SINGLE purchase. No return on spending. I for one keep my debit card and a back up credit card in my car just incase I lose my primary card. 

I think it's due to financial iliteracy and being misinformed. The ones I successfully converted to the credit life enjoy the cash back perks and increase in credit score .

The ones who do not possess/own credit cards are now finding themselves struggling to 1: receive a loan ( or finance a car) or 2: get a credit card to establish credit. What do they do? Come to me for advice and I always reminded them that the process would be 100% easier if they had started years ago. 

Live and learn I guess.

[Anonymous]

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@Anonymous wrote:

I've recently started paying attention to the card habits of friends in my age group (I'm in my early 30s). What I've noticed so far is that credit cards are seemingly heavily disfavored; even if someone has at least one credit card, debit cards seem to be used for most/almost all purchases. Basically I want to have a discussion to see whether:

1. This is anywhere near representative of millennials at large, and
2. How/if issuers should respond (and if whatever they're already doing is working).

Personally I can see a future where credit card use is very uncommon. A lot of millennials lived through the financial crisis and saw parents and other family members struggle with debt, not to mention some having large student loan debt. Those early experiences likely resulted in certain habits being ingrained early on (like debit card use over credit card use), which are difficult to change later on. Some ideas for consideration:

1. Adopt true chip and PIN for credit in the style of Diners Club, UNFCU, etc. I've lost count of the number of comments I've read/heard regarding how chip and signature is "useless", which makes me think there is a risk of people beginning to consider debit cards as "more secure" than credit cards (due to being heavily encouraged/required to enter a PIN at some/most stores)--potentially making adoption of credit cards more difficult.
2. Charge cards. AmEx has a pretty big opportunity here, IMO, as the only issuer of charge cards (that I know of, anyway)--it's just that people are reluctant to pay AFs. A charge card without an AF may do pretty well since it's impossible to go into debt with those. Alternatively, something like Europe's "delayed debit" cards might work too, though I'm not sure how viable those would be.

Thoughts?

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I'll provide my feedback based on my experiences:

- 30 year old professional college-educated white male in a city of about ~1M people. Most of my peers are in a pretty similar socioeconomic status. My wife and I combined probably outearn many of them, but not by an incredible margin.

- I would roughly quantify the distribution to be- 65% debit cards, 25% plain-jane credit cards, 10% rewards cards although overwhelmingly the more garden variety type. Some folks have good cards but don't use them when they should.

- Millennials like debit because of the simplicity of knowing how much money they have to spend, and credit cards end up forcing many into unnecessarily long grace periods to pay bills. This sounds good but it's actually a dangerous hazard. Example: I ran up quite a tab of bars and restaurants on my Freedom (around 9/3-9/6 give or take) during a Labor Day trip, yet I'm not actually due to make a payment on any of that until November 1st. How confusing is it for the average millennial living paycheck-to-paycheck to remember that what they spent money on in September doesn't come out of their account until November? I had the hardest time explaining to my (very intelligent) wife the concept of a "statement close date" vs a "statement due date".

- Let's be brutally honest here and tell the truth: 90% of us would not give a flying fudge about credit cards if it weren't for one thing and one thing only: rewards. I would LOVE to use a debit card for everything (except maybe online purchases, though even that could be remedied if banks would implement zero-liability fraud for debit) and the sole reason I play the credit card game is to earn points, miles, and cash. That's it. I've never carried a penny of a balance, never paid an interest charge, never have been late. So, for millennials who don't see enough value in complicated points earning systems, trying to redeem airline miles or hotel points, etc, why would any of them give up the convenience of debit and the guaranteed financial responsibility that comes with it.

In terms of how CC companies can change this:

- I'd say it will be hard as many millennials have learned from Gen X and the Boomers in terms of running up huge balances (I hope).

- What Blispay is doing is a step in the right direction, a dead-simple rewards program and opportunity to finance large purchases at 0% (something that can't be done with any debit card).

- Perhaps CC companies can also do away with the idea of confusing "monthly statements" and "payment due dates" and "grace periods" and just set up auto-drafts to PIF every Monday or Tuesday or every pay check or whatever the case might be. So you go out to the bar and go for brunch on the weekend, and on Monday morning a neat transaction debits from your checking account with the sum of all transactions you made since the last payment. Then you can set up large purchases to be paid over time if you choose to do so and those purchases get excluded from your auto-draft and get set up on a payment plan instead. All of this would be easy to manage with a smartphone app which millennials are comfortable with. Of course a lot of that defeats the goal of CC companies which is to get people to run up lots of debt that they can't afford to repay, so they may not like the idea.

[Anonymous]

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@Anonymous wrote:

In terms of how CC companies can change this:

- I'd say it will be hard as many millennials have learned from Gen X and the Boomers in terms of running up huge balances (I hope).

- What Blispay is doing is a step in the right direction, a dead-simple rewards program and opportunity to finance large purchases at 0% (something that can't be done with any debit card).

- Perhaps CC companies can also do away with the idea of confusing "monthly statements" and "payment due dates" and "grace periods" and just set up auto-drafts to PIF every Monday or Tuesday or every pay check or whatever the case might be. So you go out to the bar and go for brunch on the weekend, and on Monday morning a neat transaction debits from your checking account with the sum of all transactions you made since the last payment. Then you can set up large purchases to be paid over time if you choose to do so and those purchases get excluded from your auto-draft and get set up on a payment plan instead. All of this would be easy to manage with a smartphone app which millennials are comfortable with. Of course a lot of that defeats the goal of CC companies which is to get people to run up lots of debt that they can't afford to repay, so they may not like the idea.

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New products that seek to alleviate millennial's skepticism of credit products may help, but I think the most important thing would be a comprehensive push to add personal finance education to the K-12 curriculum. It's quite embarassing the amount of useless material that's taught in schools when something so critical to adult life is left for young adults to discover on their own.

[Anonymous]

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@Anonymous wrote:

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In terms of how CC companies can change this:

- I'd say it will be hard as many millennials have learned from Gen X and the Boomers in terms of running up huge balances (I hope).

- What Blispay is doing is a step in the right direction, a dead-simple rewards program and opportunity to finance large purchases at 0% (something that can't be done with any debit card).

- Perhaps CC companies can also do away with the idea of confusing "monthly statements" and "payment due dates" and "grace periods" and just set up auto-drafts to PIF every Monday or Tuesday or every pay check or whatever the case might be. So you go out to the bar and go for brunch on the weekend, and on Monday morning a neat transaction debits from your checking account with the sum of all transactions you made since the last payment. Then you can set up large purchases to be paid over time if you choose to do so and those purchases get excluded from your auto-draft and get set up on a payment plan instead. All of this would be easy to manage with a smartphone app which millennials are comfortable with. Of course a lot of that defeats the goal of CC companies which is to get people to run up lots of debt that they can't afford to repay, so they may not like the idea.

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I solved #3 by simply treating the statement due and statement close dates as one in the same (as in, it's due immediately when I get the "statement available" email). However, this might not work all that well if you don't have any sort of buffer.