Millennials Swear Off Credit Cards and Impact the Economy in a Big Way
Recent data published by Experian revealed some interesting facts about the much-discussed Millennial generation and their relationship with credit cards.
According to the data, about 67% of all Millennials (people roughly between the ages of 18 and 35) carry a credit card, even though 64% of the same age group considers credit cards to be “dangerous.”
What can this apparent combination of enthusiasm and healthy fear of credit cards suggest about Millennials’ relationship to finances and credit?
Millennials Strapped with Student Debt, Not Credit Card Debt
As of late last year, the total of all US credit card debt added up to roughly $917.7 billion. However, the country’s total student loan debt represents a larger share of the debt pie, coming in at $1.2 trillion.
A combination of the changing job market over the last two decades, educational expectations, and the rapidly increasing cost of education brought on this sudden ballooning of student debt. Now it seems that their earlier-than-expected encounter with debt has made Millennials more cautious than earlier generations.
It’s clear that young people are credit-averse, and as a result, tend to carry much less credit card debt than older Americans.
Young People Are Saving Rather than Spending
Barely half of Americans are currently on-track for retirement. Although ranked lower in terms of retirement readiness than older generations, young people showed much greater improvement in recent years than other groups. The data suggests they are on-track to be much more well-prepared for retirement considering their current age, and they tend to have a healthier nest egg than any other age group.
Millennials are a generation of individuals who came of age during the Great Recession, and the data suggests that they took those hard-learned lessons to heart. Young people may be loaded down with student debt now more than ever, but they are also more conscientious when it comes to saving.
The number of American households carrying revolving debt shrunk from 44% to 34% between 2009 and 2014, and Millennials played a large part in that shift as more of them became independent adults.
This also correlates with widespread reliance on debit cards among young people; 77% of college students used debit cards regularly in 2013.
An Unhealthy Aversion to Credit Cards?
Of course, the impulse to use debit rather than credit is understandable for savings-conscious individuals. After all, since debit cards are tied to a finite reserve of cash in the cardholder’s account, it’s easier to avoid the risk of living beyond your means. However, this thrifty mindset can have unexpected negative ramifications.
Millennials’ preference for debit cards raises the immediate concern that fraud liability for debit card users is typically much greater than for credit cards. If an individual’s debit card information gets nabbed by hackers, phishers or card skimmers, that person could be liable for hundreds, potentially even thousands, of dollars in fraud losses.
An equally worrisome long-term consequence, however, is that Millennials who elect to avoid credit out of fear of debt will also miss out on the opportunity to build credit. Considering that 49% of Millennials want to buy a home, 49% want to travel extensively and 30% want to start a business, a lack of credit can delay many of their aspirations.
Using a Credit Card Safely
It’s a good thing to be wary of over-reliance on credit. However, responsible credit card use is actually a great way to build credit. Young people can build a solid credit history very quickly by adhering to just a few practices:
- Consumers are encouraged to maintain only as many cards as they can manage. For many, it’s best to start with just one card.
- Consumers should not charge more than they can afford to pay off at the end of each month.
- It’s important to pay the bill on time. Late payments can affect credit scores, result in quickly-mounting late fees, and may involve punitive higher interest rates.
Implications for Merchants
As Millennials come of age, they will dominate one of the greatest portions of the consumer population. It is essential for merchants to take these shopper’s preferences into consideration.
Increasing Sales
There might also be a way for merchants to meet young, credit-shy consumers halfway. For example, merchants might choose to offer 0% financing on larger purchases such as home appliances, electronics or even cars.
It’s a win-win for merchants and young people—the former are able to move more merchandise, while the latter can make the purchases they want without fear of credit card debt.
Increasing Chargebacks
There are also certain vulnerabilities facing merchants as a result of young peoples’ general anxiety regarding credit cards.
People who are constantly monitoring their spending habits and analyzing debt load might be more inclined toward buyer’s remorse. Since buyer’s remorse is a leading cause of chargeback fraud, this could be an expensive side effect of selling to Millennials.
It’s also important to carefully consider emerging advertising trends and evaluate them in regards to Millennials’ preferences. For example, ‘buy now’ ads, which are specifically designed to capitalize on impulse buying, won’t likely increase sales for merchants serving this particular age range.
Getting Millennials Out of their Credit-Free Comfort Zone
Clearly, Millennials are a much more sensible, thrifty group of people than most of us would have assumed. However, their over-cautiousness when it comes to credit cards could be a problem.
Young people will need to embrace responsible credit card use in order to start making their dreams into a reality, as well as to keep the economy moving along at a brisk pace.
