Why millennials prefer cash over credit

Growing up during the Great Recession has made many young people sceptical of credit cards, writes Alice Haine

Millennials have been accused of disrupting many industries, from newspapers to brickand-mortar stores. Credit cards appear to be next in line.

Just one out of three millennials in the United States carries plastic, according to a Bankrate.com survey, compared to the majority of older Americans.

A survey from the Federal Reserve found the 18-to-24 demographic preferred using cash more than others. And if they do carry a card, it tends to be of the prepaid or debit variety, TD Bank found.

None of that bodes well for banks like JPMorgan Chase or payment networks such as Visa and MasterCard, since the fees they earn from debit card transactions are less than those earned via credit cards.

The 2008 global financial crisis and ballooning college tuition debt in the US may have also scared some millennials away.

“They experienced the Great Recession just as they were beginning school or starting their career, pondering buying a home,” says Erin Currier, director of financial security and mobility at Pew Charitable Trusts. “They are very sensitive to this life experience.”

In the UAE, attitudes towards credit card debt are also changing, with the vast majority of residents now paying off their bills in full at the start of each month.

An October survey from the comparison website yallacompare found 70 per cent of credit cardholders now ensure they clear their outstanding balance every month to avoid building up interest charges.

Less than 5 per cent of those polled said they only paid the minimum payment on their credit cards every month.

The remainder said they regularly paid more than the minimum required, but tended to have a little outstanding credit card debt every month.

This showed an improvement on a 2013 study, carried out by the same company, that found 42 per cent of UAE cardholders were only making the minimum payment each month. Millennials in the US, meanwhile, are more likely than older generations to have student loans to pay. About 41 per cent of them held such debt, according to a 2015 Pew report. That compares to, at their peaks, 26 per cent for Generation X, 13 per cent for Baby Boomers and 3 per cent for the Silent Generation.

And the burden is heavier, too: from 1990 to 2015, student debt for the typical university bachelor’s degree increased about 164 per cent, according to Education Department data.

Those big obligations could explain millennials’ aversion to borrowing, Ms Currier says.

Over time, they may never grow as comfortable with credit cards and debt as previous generations have, she says.

TransUnion confirms US millennials carry fewer cards and have lower balances than GenXers did when the latter group was aged 21-34, thanks in part to legislation limiting the marketing of credit cards on campus and the subsequent boom in the use of debit cards.

Millennials have also increased the use of auto and personal loans, TransUnion found, at the expense of credit cards. Take Bo King, 26, who applied for his first credit card about a year ago.

He grew up cautious after watching friends and family pile up thousands in debt.

Mr King, who works in retail, has been using a debit card since turning 18, but knew he would need a credit history to be able to buy a house.

“I’ve always been sceptical about getting a credit card,” Mr King says.

Eventually, though, “I saw it as a necessary evil”.

Mr King is right to be wary about building up credit card debt, as it typically offers customers the highest interest rates.

But while many millennials are getting savvier about debt, it has not stopped other Americans putting more on plastic.

According to a report from the Fed, total credit card debt reached its highest point ever last year, surpassing $1 trillion.

Experian’s latest annual study on the state of credit and debt in the US, released in January, found the average American now has an outstanding credit card balance of $6,375, up nearly 3 per cent on last year. The credit reporting company also found that the average number of credit cards held is 3.1. For millennials, the figure drops to an average balance of $4,315.

Some millennials will shift from prepaid and debit cards to what they see as an evil as they get older, according to a study by payment processor TSYS Merchant Solutions, which shows credit cards becoming the preferred method of payment after age 25.

That’s the saving grace for

I’ve always been sceptical about getting a credit card. I saw it as a necessary evil BO KING Millennial