New Survey Shows Poor Credit Habits of Millennials
Americans must love credit cards. As of the end of 2018, Federal Reserve data shows that we have racked up $870 billion in outstanding credit card debt on our nearly 480 million credit cards in circulation. However, generations vary in how they handle credit card debt.
Millennials tend to be the most cautious with credit – perhaps because many of them came of age during the housing crisis and subsequent recession. Data from the 2017 Experian State of Credit Report found that Millennials hold an average of 2.5 credit cards, while older generations hold from 3.0-3.5 cards on average. They also carry a lower average balance of $4,315, compared to $7,750 for Generation X, $7,550 for Baby Boomers, and $4,613 for the Silent Generation.
A new survey suggests that Millennial caution is warranted. The recent TD Bank Consumer Spending Index uncovered several unhealthy Millennial credit habits.
Not Off To The Best Start
According to the survey, 82% of Millennials expect that society will eventually become cashless. They don't act as if a cashless society will happen anytime soon.
Nearly one-quarter (23%) of Millennials don't have a credit card at all, while 26% prefer using cash to credit cards when traveling – the most of any generation.
One-quarter of Millennials don't know their credit score, which means they don't know their creditworthiness. Millennials may not qualify for credit cards or loans – or may pay higher-than-expected interest rates – without understanding the reason why. Consumers should always check their credit scores and credit reports regularly to assess their financial health. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
While many Millennials may not have credit cards, many others who do have cards aren't using them wisely.
Half of credit-card-carrying Millennials use between 30% and 90% of their available credit, reducing their credit score and squeezing out the financial buffer they need for emergencies. (MoneyTips members can check this metric, known as credit utilization.) Almost one-third (32%) of Millennials don't pay their credit card off in full each month, incurring interest charges and further reducing their available credit.
Millennials spend more than Baby Boomers and Generation Xers on dining. They are also the generation most likely to pay for a group outing just to earn rewards. However, Millennials are also the generation most likely to let their credit card rewards expire.Approximately 30% of Millennials have let rewards expire, compared to only 14% of Generation Xers and 9% of Baby Boomers.
If credit cards will drive the cashless society, many Millennials are poorly prepared.
Learn From Us
Millennials did come out ahead on one positive survey category. They were the generation most likely to assist their children establish credit with a secured credit card (45%) or to help them out with student loans (40%). Mike Kinane, head of U.S. Bankcards at TD Bank, suggests that Millennials may be driven to help their children avoid debt based on their own experiences with student loan burdens and other financial crisis effects.
Give Millennials credit (pun intended). Many started off with financial disadvantages and are wisely skeptical of credit and excessive debt. They are likely to improve their credit habits as time goes on – if, for no other reason, to serve as a positive example to their children.
For a generation that expects to experience a cashless society, Millennials don't seem too concerned about their current credit habits. Perhaps Millennials think that new tap-to-pay technologies like Apple Pay will kill off credit cards, or that cryptocurrencies like Bitcoin or other fintech applications will completely change the dynamics of credit.
Perhaps they will. However, the fundamentals of credit will stay the same. Lenders will always assess your risk when you apply for credit. Excessive debt and missed or late payments are likely to disqualify you for credit. That's true whether your society is using credit cards, Apple Pay, Bitcoin, seashells, or shiny rocks to conduct transactions.
You need a budget and fiscal discipline to use credit wisely. Both are key to keeping spending under control and making all payments on time. In today's system, you'll keep your credit score high and receive the best credit card offers and rewards. In tomorrow's system, who knows – but you'll still be in relatively good shape.
Millennials are likely to adapt better credit habits over time.Do your credit habits need improvement right now? Review your credit habits today and make any necessary adjustments. You'll be in better shape whether or not the cashless society arrives.
If you want more credit, check out our list of credit card offers.