The differences between millennials and boomers, or even Gen X’ers, cannot be emphasized enough. One area in which this can be seen is consumer credit. Today’s young adults approach credit very differently than their predecessors did. In general, millennials shy away from credit and instead opt for the “pay-as-you-go” cash method.
Bankrate notes that only 37 percent of people under 30 have credit cards compared with 65 percent of people over 30. NerdWallet adds that 31 percent of people between the ages of 19 and 34 have never applied for even one credit card. There are several factors influencing young adults’ limited use of credit.
In 2009, Congress signed into law the Credit CARD Act, which placed firm limits on the marketing of new credit to college students. No longer could just anyone get a credit card. Persons under 21 must either verify sufficient income or have an approved co-signer.
2. Debit Cards
One of the perks of a credit card is the ease with which items can be purchased. Millennials are the first generation to have grown up with debit cards, which offer them the same level of simplicity.
3. Personal Values
In general, millennials place less value on things like purchasing or renovating homes and more value on everyday health, wellness and enjoyment. They are content to spend more of their income on organic foods or local microbrews at hip grocery stores and less on new car loans. How this may change as millennials age will be an interesting trend to watch.
Certainly today’s young adults have heard more than their fair share of horror stories about consumer credit gone bad. Many of them have even witnessed their parents’ or other relatives’ financial disasters impacted by credit problems. As such, they are understandably more hesitant to get into debt than older consumers. This is akin to how people who lived through the Great Depression were averse to throwing things away or purchasing items they did not need because they had witnessed firsthand what it was like to not have enough.
While caution regarding credit can be a good thing, it is something that can actually hurt consumers in certain circumstances. When the day arrives that a millennial does finally want to buy a house, obtaining a good mortgage will be hard with little to no credit history.
Helping 20-something’s find the balance between just enough credit and not too much credit is something that today’s credit unions can and should focus on. They can simultaneously reward prudent behavior while educating consumers about how to protect their future creditworthiness.