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Millennials and credit card use

New Contributor

Re: Millennials and credit card use


tmiw wrote:

Sharingan wrote:

As for the OP's second consideration, there are other banks with charge cards; however, they have AFs as well from what I can see. The challenge would be combining a competitive reward structure with $0 AF, as there wouldn't be a steady flow of interest for the bank to defray some of the rewards disbursements. Such a charge card may work well for customers but would probably perform quite poorly for the bank. The American Express Zync card (which I still have to this day) was AmEx's attempt to compete in this segment and it fell flat. The AF started as low as $25 and increased as the user added more rewards to the card in the form of "packs." I doubt you will see AmEx introducing a no-AF charge card anytime soon.


I think AmEx could do a flat 1.5x cashback/MR charge card without charging an AF considering the higher swipe fees they get. In fact, I'd go as far as to say that nearly every credit card reward program is likely funded almost completely through swipe fees (which is why they've been tending to upgrade cards to Visa Signature/WMC/WEMC lately).


If you're a Schwab client, they offer a 1.5% CB card.

BFSFCU | Discover | CSP | DoubleCash | Hyatt | NFCU cashRewards | Schwab Plat
Message 31 of 149
Moderator

Re: Millennials and credit card use


coyg wrote:

tmiw wrote:

Sharingan wrote:

As for the OP's second consideration, there are other banks with charge cards; however, they have AFs as well from what I can see. The challenge would be combining a competitive reward structure with $0 AF, as there wouldn't be a steady flow of interest for the bank to defray some of the rewards disbursements. Such a charge card may work well for customers but would probably perform quite poorly for the bank. The American Express Zync card (which I still have to this day) was AmEx's attempt to compete in this segment and it fell flat. The AF started as low as $25 and increased as the user added more rewards to the card in the form of "packs." I doubt you will see AmEx introducing a no-AF charge card anytime soon.


I think AmEx could do a flat 1.5x cashback/MR charge card without charging an AF considering the higher swipe fees they get. In fact, I'd go as far as to say that nearly every credit card reward program is likely funded almost completely through swipe fees (which is why they've been tending to upgrade cards to Visa Signature/WMC/WEMC lately).


If you're a Schwab client, they offer a 1.5% CB card.


Going off topic but we're talking 3 different revenue models between Amex (at least historically), Schwab, and your typical bank (Chase, Citi, et al.).

 

I suspect the majority of Amex cards excluding the artist formerly named Costco are of the charge variety: no interest means they lose that revenue stream (though admittedly they've flirted with pay over time to try to open that up) to offset rewards.

 

Schwab makes their core revenue on asset management / transaction fees, so the 1.5% CB is just advertising.

 

Chase etc, not only get some measure of the swipe fees, but also do have some balance carried interest and other revenue streams too for that matter.  Actually to further support that, look at Chase's AF's on cards offered to the average consumer (not the Palladium), both the Ritz and the CSR are marked departures from their earlier fee structure.  

 

End of the day a company is going to have some business metric target, one of those is certainly going to be bottom line revenue, and Amex doesn't have as many levers to pull.  Personally I think someone will buy Amex whenever the stock price becomes cheap enough... or maybe they turn it around, either way I don't think Amex is going to be left as a rotting carcass even if they do look like they're going to fold: at some point it'd be a rounding error for WF and they should be diversifying as the mortgage market may not be a cash cow forever (like as soon as interest rates go up non-trivially).

 

Anyway interesting thread; I'm back at college now and still with my eating out ways, the majority of people I see are using debit cards.  Of the people I interact with directly, again mostly debit cards... this includes one legit financial advisor (age 27) and one 21ish year old who claims to do financial advising and credit repair etc on her LinkedIn page (who asked on seeing my carried stack of 4 credit cards if I had credit issues haha).  

 

 

I'll get an interesting datapoint this week as I'm eating lunch with one of the Economics lecturers, I will be surreptiously observing what he pays with too Smiley Happy.

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 741, EX 2 776, EQ 8 809, TU 8 774, EX 8 822 (1/1/18)
Goal Score:    EQ 5 771, TU 4 750, EX 2 776, EQ 8 809, TU 8 774, EX 8 822 (01/01/19)


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Message 32 of 149
Contributor

Re: Millennials and credit card use

I'm 24 and just got my first credit card six months ago (now I have two) and a lot of my friends are pretty much debit only. The issue is that there's no education. I learned about utilization, CLIs, soft pull BS hard pull, etc from this forum and similar sources. I wish that in senior year of high school it was a universal thing to teach kids the ins and outs of building credit, because as a young adult it's a huge unknown until you find places like this. Kids just don't know or get this stuff so I think some of them avoid those unknowns altogether because it's easier that way.
Message 33 of 149
New Contributor

Re: Millennials and credit card use

I'm 27 and I noticed the following:

 

*Almost all of my friends are in debt and making little money (with one having $250k student loan debt and is working a $12/hr job).

*For the most part was not educated on money (two months ago I taught my GF that by PIF your credit card bill each month you won't pay interest, she is scared of anything credit). 

*Almost all of them use Debt for purchases since they don't trust Credit Cards. 

*For the few who have Credit Cards, most of them are close to maxing out their cards (the guy with the $250k student loans is maxed out on his Chase Freedom card, guy need to stop buying stuff for his hobbies.  He also have closed credit card accounts that were PIF but charge off, fun).  

*One just got a a government job and needs Credit Cards to hold him over until he gets his first paycheck.  He is currently maxed out on his Discover card. 

 

Out of all of my friends, I'm the one with five credit cards with really high limits ($20k is my max on my Amex BCE).  I only use Credit Cards for their benifits.  My main two cars are the Amex BCE ($20k) and Chase FU ($9k). I used them for cash back and also both cards are currently 0% APR (this is the only time I will roll over any balances on a card, other wise PIF).  I also got the Blispay card as well when I need it.  

 

Hey, free money + benfits + and warranty makes me a sucker for credit.  Plus the the only time I ever paid interest on a card  was $5 to my Credit Union Credit Card.  Keep in mind I was taught when I got my first Credit Card (from BOA) to PIF every month.  It was the free benifits that came in later. 

Message 34 of 149
Frequent Contributor

Re: Millennials and credit card use

I'm the father and uncle of 7 millennials in total. One observation I would have is that

millennials in general are less financially sophisticated than recent previous generations

were at the same age. It shows up in the delayed household formation and the delayed

home ownership or renting as an individual. The economy is structured differently now

and personal financial skills aren't as necessary or useful as they were for previous generations

during young adulthood. Maybe they will catch up later as delayed financial decision

time comes to them or maybe it is a societal evolution. Dunno, it will be interesting to

follow.

 

I have spent some time with "the kids" trying to impart a little knowledge about matters financial.

To be very honest, I think that credit card usage is a very low priority compared to getting up to

speed on things like retirement savings, preparing for home ownership and managing insurance

coverages. But I have made some of them AU's on various cards to jumpstart their credit profiles.

I give them the strong advice though, that actual usage of credit cards has only limited rewards and

potential of greater risk. You have to have your eyes wide open and educated if you are going to

integrate credit cards into your day to day finances. So far, none of them have really jumped on the

credit card bandwagon, which I think is fine.

+ 850 FICO8 since 2015, Thanks MyFICO
Message 35 of 149
Regular Contributor

Re: Millennials and credit card use

I'm mid 20s and I use my CC to pay for everything as much as possible and then pay in full each month. There is no education about finances in schools or how to be responsible with loans and credit so when "we" hear about these things there is an aura of negativity surrounding it. Thank the CC gods for this forum.

Chase Hyatt | Chase Freedom | Amex ED | Discover IT Miles | Amex SPG
Message 36 of 149
Moderator

Re: Millennials and credit card use


bada_bing wrote:

I'm the father and uncle of 7 millennials in total. One observation I would have is that

millennials in general are less financially sophisticated than recent previous generations

were at the same age. It shows up in the delayed household formation and the delayed

home ownership or renting as an individual. The economy is structured differently now

and personal financial skills aren't as necessary or useful as they were for previous generations

during young adulthood. Maybe they will catch up later as delayed financial decision

time comes to them or maybe it is a societal evolution. Dunno, it will be interesting to

follow.

 

I have spent some time with "the kids" trying to impart a little knowledge about matters financial.

To be very honest, I think that credit card usage is a very low priority compared to getting up to

speed on things like retirement savings, preparing for home ownership and managing insurance

coverages. But I have made some of them AU's on various cards to jumpstart their credit profiles.

I give them the strong advice though, that actual usage of credit cards has only limited rewards and

potential of greater risk. You have to have your eyes wide open and educated if you are going to

integrate credit cards into your day to day finances. So far, none of them have really jumped on the

credit card bandwagon, which I think is fine.


I see things as far more intertwined than that: without credit cards or other tradelines it's non-trivially hard to obtain a mortgage in the current market.  Additionally in some states it is legal (and therefore done) to use credit as a determining factor of insurance rates... being fiscally responsible mandates optimizing one's credit report for these and other reasons TBH.  

 

That doesn't even include more advanced topics like floating balances for a month so you can max out your annual tax-deferred retirement contributution.  

 

Admittedly a financial collapse isn't out of the realm of possibility in which case we may go back to a cash or even barter based economy, but barring that near doomsday scenario, can't simply ignore the fact that a credit score requires tradelines, which generally speaking, means credit cards.  More likely with the attempt in FICO 8 and the yet to be proven false comments regarding FICO 9, I'd be very leery of relying on AU's while delaying the decision to pull the trigger on establishing their credit.

 

Running around without a credit score is simply handicapping oneself, I made it to age 36 mostly without a credit card and wearing the numbers off my BOFA debit card (literally)... then whoopsie, no house for me.  I wouldn't recommend that for anyone.

 

/soapbox

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 741, EX 2 776, EQ 8 809, TU 8 774, EX 8 822 (1/1/18)
Goal Score:    EQ 5 771, TU 4 750, EX 2 776, EQ 8 809, TU 8 774, EX 8 822 (01/01/19)


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Message 37 of 149
Established Contributor

Re: Millennials and credit card use


r34dy2fly wrote:

I'm in my late 20's and I'd say between my friends, it's equally balanced. You have your financially savvy people who make use of all the perks of having a credit card. You have far more fraud protection using a CC as opposed to a debit card. You get cash back, etc etc. I also have friends who just... don't get it. They primarily majored in some form of arts program and anything finance just makes their heads explode. 

 

I don't think its really a generational thing. I think it's more of a financial literacy thing. Maybe our generation just has more liberal arts majors than previous generations. Maybe no one taught them how to budget a check book. I don't know exactly. I will say though that overall, almost no one has a sizeable savings. Everyone is too busy paying off student loans or they just majored in something that doesn't pay out monetarily. I'd say only a quarter of my friends have their financial act together with a 401K, IRA, and have decent savings. 


I also am a millennial and many people i know are averse to credit. They use debit cards. For me, the financial crisis hit at an important point in my young adulthood and ingrained in me fiscal responsibility.

 

I strongly agree and disagree with what you said. I agree it's related to financial literacy but also personality. Financial literacy is totally unrelated to your major. I have a degree in public policy, regulation and advocacy but also minored in business. I know many business majors and science majors that are clueless financially. Also, I fear we sound elitist as many on here aren't educated and are savvy with theit wallets.

FICO- Experian: 797, TransUnion: 781, Equifax: 804 (Updated Monthly)
Message 38 of 149
New Contributor

Re: Millennials and credit card use

I am 36, and the regional manager of an industrial inspection company.  

 

In my office, in the last 3 years, I have hired 8 people all under age 30 (and some under age 20).  Not a single one of them has a clue about credit, and none of them have credit cards.  All use debit.

 

Recently a couple of them bought new cars/trucks, and the interest rates they were offered were truly apalling, even after putting down large cash down payments.  This was largely due to not having any credit history at all.  I do my best to explain the best use of credit and how they can build a very strong foundation early in life by utilizing the money they make, which is higher than most their age.  None seem that interested in micro-managing their finances though:  as long as they have money in their account, they're good.

 

Don't get me wrong:  most of them save money much better than I did at that age:  its just that their money is stuck in accounts that don't earn any money for them.  Some don't even take advantage of the matching 401k our company offers.  Truly mind bottling.....

 

None of them think about the future much:  the thought of mortgages, retirement, investing......zero interest.  

 

There truly needs to be a financial skills class taught in school:  it is far too easy for these kids to get taken advantage of by predatory loans and high interest credit cards.

 

They comment on the ease in which I can get credit issued to me:  car loan, 0% interest offers on furniture/applicances, etc...  They all seem to be under the impression that it solely depends on your income:  yes I make more than they do, but it is good credit habits that affect your score far more so than income.

 

 

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Total Credit Limit - 135.5k / Total Utilization - 10%

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Message 39 of 149
Contributor

Re: Millennials and credit card use

I'm a responsible spender so I don't fear using credit cards. It's feels too prestigious to put off credit cards. Having prime credit cards tell others that I'm a financially responsible person - not everyone can have these cards. 

 

I'm not saying this assumption is always right, or is it right to feel so, but I feel repulsed when I see people pay with their debit card. It makes me think they either have no credit or bad credit. I enjoy using the bank's money for free while earning rewards simply from using their cards. Of course, this isn't for everyone, just for the financially responsible. However, I'm not the type to purchase anything that appeals to me the moment see it.

 

 

American Express Blue Cash Every | Discover it | Citi Double Cash | Capital One Quicksilver x 2 | Barclay Rewards | Amazon Store Card | PayPal Credit | J. Crew | Old Navy | All approved in 2015. FICO 08: 780/782/786. Garden Club member since 10/13/2015.
Message 40 of 149