I am 23, and it is true that many people my age had to see family go through huge debt, so I understand why young adults are hesitant to use credit cards. In my case however, I understand that as long as I am responsible using my credit cards, then it shouldn't be a problem. I also understand the benefits of using credit cards, like rewards and a healthy credit report that will open the doors for better credit in the future (car loans, mortgage, etc).
I am 22 and attend a liberal arts college. I've noticed very few of the students I interact with at work or in class have credit cards in their own name, and those that do often favor their debit cards. A lot of the responses I hear from people are that they'd rather not get deeper into debt because they're affrid of the temptation a credit card can present. So when they overdraw or have $2 left, they don't eat until a parent places more money in their account. It seems to me like this all stems from a lack of financial literacy due to complacency. "Nahh, it's fine", is an all too common response to a situation requiring attention these days. There's too much hand holding required and if people aren't explicitly shown how to do something or heaven forbid it actually requires some work to attain, they won't do it. I cannot speak for everyone in my generation, but I was NOT taught how to balance a budget in school. I can recall 1 or 2 days in highschool either junior or senior year where we were shown how to fill out a check book. That's it. Everything else was attained through common sense and the determination to figure out what my financial responsibility requires.
Maybe they are so far behind on their huge student loan debt that they can't quailfy for credit cards
I am 32. I think that a lot of this stems from financial illiteracy. When I was in my 20s I knew about bank accounts, balancing checkbooks and how to compound interest rates and calculate all that, but never knew anything about how credit scores worked or credit cards. The whole push was, "you don't want to be in debt" and credit cards are associated with debt. A lot of people i have ever talked with paint credit card companies as villains seeking to rake money out of you, and with a lot of people nowadays, they think any business looking to make a profit is "bad", (but still want a job and get paid for it lol). I also get this sense that people younger than me that I know, have an air that they are not responsible for themselves and someone else should figure it out or pay for it for them.
So I think the whole thing is that people do not trust credit because they do not truley understand it, and they do not understand what credit scores are or how they work. Interestingly enough, I have been thinking on this in regards to my own 2 kids and how I can teach them financial responsibility. It is not a course in school, and it is my duty to prepare them for their futures.
From my observation, I find that there are a few factors in why Millennials have shied away from credit cards:
1. A desire to avoid debt. There is a misperception that using credit cards automatically puts one in debt. For those of us who PIF and enjoy rewards, we are all too famility with how to use the grace period to avoid interest. Those unfamiliar with cards may not be as aware of this. Also, Millennials as a group hold a lot of SL debt compared to earlier generations, due to the cost of education severely outpacing the value of wage earnings.
2. Credit may not be as easy to get. When I was in college in the late '90s, credit was very easy to get and lenders heavily marketed to students. It wasn't a wise decision, and many people my age have the BKs to prove it. The CARD act provided needed reform, but the flipside of that is that credit is not as easy to get for young people as it was in earlier generations.
3. Misperception of debit cards as "safer". Due to requirement of a PIN, some people mistakenly feel that Debit cards are a safer form of transaction. Of course, that isn't the case, as debit cards as just as prone to being compromised as credit cards. However, with debit cards, the funds come right out of your bank account. While banks can be helpful by offering credits to your account, success with this is hit or miss. With credit cards, you generally aren't on the hook for your credit line. Plus, you can simply use another card while your old card is being reissued. I don't know if this is necessarily a generation perception, however.
I think lenders should respond by playing up the perks of credit cards, especially items like fraud liability and the positive effects of building one's credit profile. As for the success of charge cards for millennials, I could see a market for something like AMEX Zync coming back, if marketed correctly. However, I don't see the value in the high-AF charge cards for most millennials, except perhaps those who frequently travel.
Very interesting post here and I've wondered this myself.
Im 30 and most of my friends honestly know nothing about credit cards. I paid with my American Express when going out to lunch with a coworker and my coworker said "man I thought American Express was for old people." Haha
I also notice that most of my friends that do not have credit cards also don't have any type of savings-- like another poster here said they live paycheck to paycheck.
My parents never had good credit and made horrible financial decisions. I was able to take that and be the complete opposite. I'm pretty confident I have more in my savings and 401K than my parents did.
There was an article in the NYT today that reminded me of the discussion on this thread about how what melliennials (who use credit cards) are looking for and why that is bad for Amex: https://www.nytimes.com/2017/04/14/business/american-express-chase-sapphire-reserve.html
Anyway, I personally agree with a lot of what has been said here. I definitely agree that there is a lack of financial literacy, but not just in our generation. I know many boomers and gen x'ers who dont have much financial literacy either. Personally, I didn't know anything about how credit scores worked until my third year of law school when they hosted a lunch event to go over the basics of credit. Interesting, it was a super popular event. I think there is a lot of desire for more financial literacy.
As for me, I am 29 and used to bounce between credit cards and debits cards. I finally stopped using debit altogether after one unfortunate weekend when I lost my one and only credit card and then had fraud hit my debit card. Fortunately, my credit union is awesome, but they froze all of my accounts while they dealt with it. I had no way to get to any of my money. And one time, I made the mistake of booking a flight on a debit card, which got delayed overnight, and I was not able to use my travel delay protection. Now, I don't even carry a debit card with me.
I notice that my professional friends and peers mostly use credit cards. I think this has to do with the fact that we frequently have to purchase travel and then file expense reports, so credit is nice because we get reimbursed before the bill comes due. But the vast majority of my friends use debit cards and this becomes more common the less affluent they are.
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:
- This is anywhere near representative of millennials at large, and
- 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:
- 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.
- 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.
I'm not a millennial but I can tell you when I was younger I shunned credit cards after seeing people get into debt. Honestly a lot of hostility towards credit cards was based on a misunderstanding about how they work and I can see Millennials thinking the same thing. A lot of people don't understand that you can avoid paying any interest if you PIF. Others don't see the value in the rewards they can earn via credit cards. And most don't realize how credit works in general and how not having a credit card account can kill your credit score. Credit card issuers when I was in college exploited college students. They handed out cards like candy and kids ran up balances and got themselves into a huge amount of debt. I'm not in favor of anything that would allow credit card companies to target young adults. Unless you have a job you shouldn't ever have AF cards of your own. In terms of people in their 30s they should probably get a credit card to help build their credit file. That being said americans now owe over a trillion dollars in credit card debt which is the highest level since the last recession, so people are certainly using a ton of credit. It all makes me quite nervous because I keep getting this feeling that the economy will get the rug pulled out from under it. I'm not convinced all the jobs that have been created since the last recession were all that high paying and we are one downturn away from massive layoffs. Factor in layoffs with over a trillion in credit card debt and we could have real problems.
Im 31 and most of my friends who are about the same age either completely use debit (dont have credit/dont want credit) or primarily use debit and have one or two cards that they rarely use. Im the outlier of the group. I have 5 credit cards and one store card and use all of them fairly regularly depending on where I spend to maximize rewards. The only time I touch my debit card it to deposit cash at the ATM. I have also been furiously trying to rebuild my credit in preparaation to buy a house in the next 5 years or so where my friends tend to not worry about their credit very much if at all.
I do have one friend who primarily uses credit cards but doesnt try to maximize his possible rewards. In general though, it does seem like most people my age seem fairly credit card adverse. It saddens me a bit since they are such a useful financial tool when used responsibly,