Young adults have fewer credit cards and used them less often that older consumers, a new study as found. A rising number are avoiding plastic altogether, although some may find using personal installment loans useful to them.
Credit bureau Experian says so-called millennials — adults under 30 — carry 40 percent less credit card debt that the average American ($2,682 vs $4,501). Millennials also carry an average of only 1.6 bank-issued cards, compared to 2.2 for the average consumer. According to LowCards.com, 16 percent of adults under 30 don’t carry any credit cards, up from 9 percent back in 2005.
This doesn’t necessarily mean today’s young people are handling credit more responsibly than their predecessors, but it might. There is a chicken and egg problem in assessing these results. The Great Recession caused banks to tighten credit and lending standards, so it’s harder for young people with little credit history to obtain credit cards and to get high credit limits. Financial reform also limited some kinds of credit card marketing to young people. So the reduction in reliance on plastic could simply a function of youth being cut off by the banking industry.
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But I think there’s more going on here.
I have “Depression-era parents.” When I was a kid, my mom couldn’t imagine using credit cards for anything other than reserving hotel rooms. In her head, the equation was simple: debt=bad. Today’s millenials, at least the younger ones, are children of the Great Recession. They have a lot of student debt. They have incredibly uncertain job prospects. And they don’t have the bold (foolish!) confidence of Gen-X that money will roll in and they’ll be able to pay for today’s fun tomorrow. Some data bears out this theory.
The L.A Times examined this issue last year and reported that millennials are less likely than other consumers to pay for everyday expenses with a credit card, according to the National Foundation for Credit Counseling. Saving money is considered a virtue; excessive spending isn’t cool.
“I just hear so many horror stories about people being in debt,” Tim Ratliff, 21, told the L.A. Times. He is plastic-free. “When you have a credit card, you feel like you have a lot of money when you don’t.”
As we all know, aggressive marketing can create almost any consumer behavior. If and when banks decide its time to nudge young people into using credit cards with abandon again, I’m not sure I like their chances. Free gifts, excessive travel rewards, seemingly generous repayment terms — the list of weapons that banks have is nearly endless. But I know this: My mom still hates using that credit card, and only pulls it out when she has to.
I like to think Recession-era kids will end up like my mom, and won’t lose their healthy skepticism about debt, and banks.
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