The New York Times reports that young people seem to be showing an aversion for credit cards and credit card debt, a trend that "could have lasting repercussions for millennials, as well as for the financial system and the economy. Early use of credit cards has, in the past, helped young Americans develop a comfort level with credit that can last a lifetime and lead to a succession of big purchases financed by debt. Without a substantial credit history, it is much harder to take out a home mortgage, for example."
The story says that "data from the Federal Reserve indicates that the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989, when the Fed began collecting data in a standardized way." While older Americans also have been reducing credit card usage and debt since the 2008 financial crisis, the Times writes that "for no other age group has the decline in the proportion holding credit card debt been more rapid than it has been for young Americans — who are often referred to as millennials — the data from the Survey of Consumer Finances shows."
The Times goes on to say that "it is clear to economists who study payment patterns that millennials are gravitating toward payment methods that skirt both cash and credit. Why carry cash when you can whip out a debit card for the smallest transaction — a sandwich or a bottle of soda — or use an app like Venmo or an online payment service like PayPal? All of those typically draw funds directly from a bank account."
The story says that "data from the Federal Reserve indicates that the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989, when the Fed began collecting data in a standardized way." While older Americans also have been reducing credit card usage and debt since the 2008 financial crisis, the Times writes that "for no other age group has the decline in the proportion holding credit card debt been more rapid than it has been for young Americans — who are often referred to as millennials — the data from the Survey of Consumer Finances shows."
The Times goes on to say that "it is clear to economists who study payment patterns that millennials are gravitating toward payment methods that skirt both cash and credit. Why carry cash when you can whip out a debit card for the smallest transaction — a sandwich or a bottle of soda — or use an app like Venmo or an online payment service like PayPal? All of those typically draw funds directly from a bank account."
- KC's View:
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The story notes that it isn't just resistance to debt - often created by the experiences of parents who got crushed during the financial crisis - that is driving millennials' attitudes about credit cards; banks no longer deluge people with credit card offers, and have tougher rules for who can be offered credit cards.
While there is much about this story that is positive, there are some implications for economy. Forget using credit cards to buy groceries and computers ... if millennials are not creating credit histories for themselves, it will delay their ability to buy cars and get mortgages, which only builds on already existing trends that have them far less interested in owning homes and automobiles.
If people aren't buying stuff, it makes it a lot harder for the people selling stuff.
