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Princeton Survey Research Associates International (PSRAI) released the results of a poll on how Millennials use credit cards, and some of the data is making headlines in the financial industry.
The poll was conducted by phone in July and August, and involved more than 1,000 Millennial consumers. Here are the results of that poll. With any survey, however, it is important to look beyond the surface and try to understand the underlying causes and implications.
Over Half of Millennials Don’t Have a Credit Card
The most surprising finding of the survey is that the majority of young adults between the ages of 18 and 29 don’t carry credit cards. Many experts explain that young consumers prefer prepaid cards because they are just as convenient, and they don’t let you carry a balance or risk falling deeper into debt.
The reason provided by Millennials, however, are slightly contradicted by other information we know about Millennials. They are known for doing lots of due diligence and consumer research to find the best deals possible. Younger consumers often report that price tags rank very high for them when making purchase decisions. Prepaid cards, however, generally carry higher fees and more miscellaneous charges than traditional credit cards.
Since younger adults are inclined to do careful comparison shopping, it stands to reason that they would also want the least costly type of plastic – not the most expensive kind.
Coming of Age in the Great Recession
Another explanation for this trend of Millennials carrying prepaid cards or ATM cards instead of full-fledged credit cards could be that many of those who were surveyed are not yet 21 years old. Under the CARD Act of 2009, passed during the wake of the credit crisis, you must be at least 21 years old to have a credit card, or if you are between the ages of 18-20, you must provide compelling evidence of your income to pay your credit card bills.
Perhaps the most significant reason that more Millennials do not have a credit card is that lenders will not issue plastic to them because a disproportionate number of college students are graduating with debt, and the job market for recent grads is very limiting.
Drowning in Debt When Credit is Tight
Banks make it much harder to qualify for a credit card these days, which is another reason Millennials, are challenged and disadvantaged when it comes to credit.
America’s student loan debt is nearly $1.2 trillion, and most student loan borrowers today are juggling four different loans. Approximately 70% percent of all students graduate college in debt. Interestingly enough, that is almost exactly the same percentage of Millennials who don’t have a credit card.
Since credit utilization is one of the key factors used to determine your credit score, it is easy to see why today’s young adults may not get approved for credit. That greatly limits their options to just prepaid debit cards and secured credit cards.
Young consumers are not the only ones who may be carrying plastic less often. A Gallup poll also found that credit card use by all age groups of American consumers has fallen significantly since the Great Recession.
60% Carry a Balance on their Credit Cards
Sixty percent of consumers under the age of 30 carry a balance on their credit cards, while less than half of cardholders age 30 and older carry credit card balances.
One problem with reading too much into this statistic is that the Millennial Generation is generally defined as people born between 1980 and 2000. That means that many members of that generation are now between the ages of 30-35.
What this 60% statistic is really saying, in other words, is that consumers in their 20’s are carrying a balance on their credit cards. Since these young adults are also just getting started on their careers, it makes perfect financial sense that they may need to rely more heavily on credit cards than older adults and may need to also carry a balance. This statistic also indicates that people in their 20’s are living beyond their means and are less adept at managing their money; however, this has been true for almost all generations, and is simply part of the process of learning to grow into an adult.
3% of Millennials Have Made a Delinquent Payment
Another major statistic worth noting is that 3% of Millennials admit that they have completely missed a credit card payment. That is more than any other age group and is approximately three times more often than the average credit card holder. Overall, less than 1% of average consumers admit to missing a credit card payment.
This does not mean that one should automatically assume that younger consumers are less responsible. People from each generation are less financially stable and experienced at budgeting when they are young. Older generations have had much more time to accumulate wealth, as well as advance their careers and increase their incomes. They also have had plenty of time to learn from past experiences and know that missing credit card payments can have serious negative consequences.
Millennial Consumers are Improving
A few years ago, a study revealed that 33% of Millennials still received financial support from their parents. Now that the economy has improved, there is a mass migration of Millennials moving away from that kind of financially subsidized arrangement.
Despite being younger and having less time to grow wealth, Millennials are actually making a massive contribution to the American economy. Most people do not realize that approximately 30% of all entrepreneurs are under the age of 35. Within the next five years, Millennial spending is also projected to reach $1.4 trillion annually, and will represent 30% of all domestic retail sales.