Millennials may be the most scrutinized generation in history. According to various claims, millennials are killing everything from diamonds to grain. Usually, not every millennial is interested in credit cards. But is this really true?
In 2016, we reported that only 33% of 18- to 29-year-olds had a credit card. At the time, 55% of those aged 30-49 had a credit card, along with 62% of those aged 50-64 and 68% of those age 65 and over.
Our latest data, compiled in Bankrate’s December 2021 Credit Card Feature Survey, shows that 55% of 18-29 year olds have at least one credit card. This figure is up to 73% in those aged 30-49, 78% in those aged 50-64 and 89% in those aged 65 and over.
As you can see, credit card adoption has increased on a large scale, and especially among young people (although they still lag behind older adults). What is holding young people back? I have some theories.
Access to credit
This is probably the most important factor. A milestone is the CARD Act, a federal law that took effect in 2010. The act includes a provision that makes it harder to get a credit card before the age of 21. The act also sets stricter “reimbursement capability” standards for all cardholders and kicks credit card marketers off college campuses. These have been included among other well-intentioned consumer protections. I’ve heard from many Gen Xers who had trouble with credit card debt because cards were too easy to find during their college years.
The problem is that it often takes credit to get credit. It’s like your first job. Employers want you to have experience, but it’s hard to get experience unless someone is willing to hire you. It can be a hard loop to break. Credit works the same way. That’s the unintended consequence of the CARD Act, which has left many people in their mid- and late 20s in credit limbo.
Surely that didn’t help millennials and Gen Zers suffered a double economic crisis at a young age. The financial crisis from 2007 to 2009 and the COVID-19 pandemic both caused unusually strong recessions, leaving lenders (and many consumers) especially wary of risks.
Plus, because young people are just starting out, they tend to have lower credit scores. In periods when lenders don’t like risk, they are one of the most affected groups. They are also more vulnerable, due to lower initial salaries, less savings, student loan burdens, and an overall financial situation that is simply more unstable.
Student credit cards and secured credit cards are traditional start-up cards. In addition, startups like Petal® and TomoCredit have come up with new approaches aimed at expanding access to credit for young people and other underserved groups. Alternative credit scoring systems like Experian Boost are another way for young people to join the credit system.
Disgusted by debt.
Jason Dorsey, founder of the Centre for Generation Dynamics, said: “Generation Z is generally much more cautious with their spending and debt than previous generations.
This is likely to reflect the “chicken or egg” dilemma — such as whether Gen Zers really doesn’t like being in debt or are they just having trouble qualifying for credit products? I tend to agree that there is a philosophical element to this.
On the other hand, avoiding debt is a perfectly reasonable behavior that will serve Gen Zers well. But sometimes credit is needed — such as to buy a house or a car. And it can be as frustrating as student debt, having a college degree can basically significantly increase your earning potential in many industries. Also, remember that maintaining a good credit score will help more than just borrowing money. Landlords, utility providers, and even some employers review your credit report.
Generation Zers love their debit cards. But if it’s harder to set up credit and if young people are in more debt, what should they do if they want to buy something they can’t afford today?
The instant, postpaid buying (BNPL) industry has emerged as a popular solution and it is growing like a storm. Companies like Affirm, Afterpay and Klarna offer well-defined payback terms, attracting those who are afraid of open credit card debt. Sometimes they don’t even charge interest. According to Cornerstone Advisors, by 2021, 41% of millennials and 36% of Gen Zers will use the buy-now, postpaid option. On the other hand, only 30% of Gen Xers and 18% of boomers do so. BNPL has so far largely remained out of the traditional credit system, but that is about to change.
The bottom line
Although they are a bit reluctant, I believe that young people will eventually jump deeper into the credit card group. And they should do so. Credit cards offer rewards and much better buyer protection than other payment methods (including fraud resolution, purchase protection, extended warranties, and more). Credit cards also help you build credit, which debit cards and most buy right now, paying for later plans (at least so far) are not.
Those of the larger millennial generation clearly got the message. The launch of Chase Sapphire Reserve® in 2016 heralded a new era of age-appropriate experiential travel privileges. It also helps those of the oldest millennial generation who have turned 40 and are now more stable in their careers and family life.
I believe that young people are approaching. As Discover CEO Roger Hochschild explained on the company’s January 2021 earnings call, “In my decades in this business, there’s always been something that’s going to kill credit cards. But so far, the industry’s growth trajectory has remained solid.”
Do you have questions about credit cards?