Why Millennials Hate (or Love) Credit Cards

Millennials have been accused of killing nearly everything, from traditional 9-to-5 jobs to department stores to marriage. The blame is not always entirely deserved, although it is clear that millennials tend to have different preferences and priorities than older generations.

It does appear that millennials are legitimately causing some significant changes in society. Journalists, economists and analysts are all eager to find what might be next on the chopping block. Avocado toast appears safe for the time being, but there’s something else that might be next on the millennial murder spree: Credit cards.

 

Cash or Credit?

Compared to older generations, millennials are increasingly ditching credit cards, and choosing to use cash and debit cards.

A Bankrate.com survey published in 2016 found that just 1 in 3 millennials had a credit card, while 55% of those over 30 had at least one.

The reasons cited in the survey were many. For one, millennials are far more likely to have student loan debt than previous generations - a burden that makes many wary of taking on additional debt.

Living through the 2008 financial crisis also had an effect. Many observed firsthand the crippling effects of excessive consumer debt during the crisis, and have vowed not to repeat the mistakes of the past. Others came to blame the big banks for the crisis, creating a general sense of distrust in banking institutions.

 

Credit vs Debt

None of this is good for big banks - but it’s also bad news for many millennials.

Having a good credit score is essential for getting a mortgage, auto loan or even an apartment. And unfortunately, one of the best ways to build credit is to have a credit card or two.

While millennials are right to be wary of debt, it’s important to make the distinction between credit and debt. You can have and use a credit card frequently without paying interest or getting yourself into debt. This concept, it seems, has been missed by many young individuals.

Thus, many younger people are discovering later in life that their aversion to credit cards makes it harder to secure a mortgage, or even an apartment lease. Credit scoring relies heavily on length of credit history, so a lack of a credit profile is not something that can be quickly remedied.

To add to this, those who choose to use cash or debit cards are not earning any rewards for their purchases. Interestingly, it appears that those who pay with cash are effectively subsidizing the rewards of those who pay with credit, according to a 2010 paper by the Federal Reserve Bank of Boston.

 

Love It or Hate it

It appears that the bulk of millennials simply do not use credit cards.

On the complete opposite end of the spectrum, many young people are taking full advantage of the credit card rewards offered by the big banks. Some millennials have 5-10+ credit cards (or even 29!), opened primarily for the signup bonuses and travel rewards.

When managed responsibly, many young people are able to earn discounted travel and lucrative rewards using credit cards - without getting into debt or paying interest.

Ironically, it seems that the bulk of millennials either have zero credit profile, or a thick stack of credit cards from every major bank.

In a world of polarized extremes, one might wonder - perhaps there is a healthy middle-ground to be found?