Gen Y Shuns Credit Cards


credit cardCredit cards may not be as trendy as they used to be, according to an analysis by FICO.

The credit scorer’s data show that 16% of people aged 18 to 29 had no credit cards in 2012, up from 9% in 2005. As a result of lower credit usage, Generation Y’s average outstanding credit card debt was $2,087 last year, down 32% from a $3,073 average for young people in 2007.

Why Do Millennials Have Less Credit Card Debt?

This sudden drop can be partially explained by the Credit Card Accountability Responsibility and Disclosure Act. This law, passed in 2009, made it more difficult for borrowers under 21 to obtain a credit card.

The poor economy and job market also changed younger consumers’ overall attitude toward credit cards. Frederic Huynh, a senior principal scientist at FICO who oversaw the research, told The New York Times that “it stands to reason that the Great Recession has influenced, to a certain degree, consumer credit behavior as well.”

This apprehension toward credit could have dire consequences for these young consumers. They may not be able to build credit as quickly, since using plastic wisely is the fastest way to demonstrate a borrower’s creditworthiness. Although Huynh said that cards are “influential and critical” to evaluate credit risk, there are other ways for Millennials to build credit.

Despite ditching credit cards, Gen Y has no problem racking up student loan debt, which has grown from $6,500 in 2007 to $11,500 in 2012. Student loan debt is the only kind of debt that has increased for this group over the past five years, Huynh says.

Millennials may believe student loans are preferable to credit card debt, but each has its drawbacks. Whatever kind of debt you may face, it is important to have a plan to pay it off.

RELATED: 3 People, 1 Big Student Loan Debt: My Make-Ends-Meet Plan

  • Lance Wyllie

    To say that “apprehension to credit could be dire” is completely irresponsible. No one… NO ONE needs credit to live. Save 1/2 of what you make and live simply. You’ll be surprised how stress free and happy you will be.

    • A concerned millennial

      Actually, as the article points out, apprehension to credit can prevent millennials from building credit history. I’m now 25, and this has been a problem for my peers for both buying cars and renting apartments. They don’t have a credit history, and when the day comes to buy a house, they’re not going to be able to get a loan.

      On the other hand, my parents wisely helped me through the process of opening a credit card in my name before I started college and taught me that my credit card is no different than my debit card – I can’t spend any more with credit than I have in my bank account. As a result, I’ve never carried a balance and have always paid my credit bills on time, and my credit score is phenomenal. In addition, I’ve racked up enough airline miles for thousands of dollars worth of free flights. Having a credit card in my name has made me MORE responsible with money and has saved me a lot in the long run.

      In summary, we should be teaching young adults to be responsible with credit, not to avoid it.

      • Lance Wyllie

        Credit cards are never necessary, and your reasoning is flawed on many levels.

        This is what should be taught to kids just starting out, and even from a young age:

        Always save 1/2 the money you make.

        Establish a great relationship with a local bank (preferably a credit union). Establish credit by buying an 18th month CD at the bank for a $1000, and then use it as collateral for a $1000 18th month loan. Pay the loan payment on time, every month until it is complete. Repeat a couple of times.

        Save 1/2 of what you make. Rent. Buy your car cash. I travel using my debit card (personal) and still get airline miles. Sure, hotels hold deposit money, but I know that going in. Usually $50-200. If you have money saved this isn’t a problem.

        Don’t buy a house until you have saved enough for a 25% deposit and additional 2 years of income. I guarantee you will get a loan with this saved.

        Don’t buy a giant house. No one needs more than 2000 sq ft. Buy a smaller house in an outstanding town. Don’t buy a fancy car to impress. Buy a Honda (cash).

        Only buy what you need. Buy the gadgets of people who always get the latest. (my wife’s iPhone 4S was $100 from someone upgrading to a 5).

        Don’t eat out. Set aside money to eat out once a month at a really nice place, and money for 2 drinks at 2 happy hours a month.

        Always have a budget. Stick to it. Never spend more than 1/2 of your income. Always save the other 1/2.

        Do this, and you will never need to worry about your credit score and you’ll be a happy worry free person.

        • Greg Haney

          Mr. Wyllie, these are all great points, but don’t seem to be related to credit cards. These are budgeting guidelines.

          Also, you called the commenter’s reasoning “flawed on many levels” but did not describe how so. I’m curious how his very positive experience with credit can be seen as flawed?

          • Lance Wyllie

            I took issue 1st with “apprehension to credit could be dire.” This is simply not true. Apprehension to credit will simply change the way you do things. The flawed on many levels aspect, is believing that teaching kids HOW to use credit cards over teaching them NOT to use credit cards is the way to go. To say people need a credit card is very flawed. This is very surprising and troubling coming from a financial planning website.

          • Greg Haney

            Ah, it was confusing because you posted this as a reply to a comment, not the article itself.

            For reference I could not locate the part of the article which said consumers needed a credit card, it simply stated by not having one consumers “may not be able to build credit as quickly, since using plastic wisely is the fastest way to demonstrate a borrower’s creditworthiness.” (It’s worth noting that this sentence appeared directly before the link to how people can build credit history without using credit cards.)

            Additionally, the parts of the article you mentioned were either quotes or summaries of statements by Frederic Huynh, a senior principal scientist at FICO. It stands to reason that his credentials qualify him as a financial expert on credit.

          • Lance Wyllie

            My original reply was to the article, and the response to my response was essentially that kids would struggle unless taught how to use credit cards.

            FICO has a vested interest in people caring about credit scores and credit cards. So while Mr. Huynh may be an expert on credit, he would not tell others not to use credit.

            Thanks for the great debate. I am still surprised that financial planners/analysts are defending credit cards so rigorously. Credit Cards are not necessary. This is my entire point. I live quite well without credit cards. Do you really believe they are must have?

          • Greg Haney

            Credit cards are not a *must* have for consumers, but they do provide avenue for building history faster and easier. Your described method of CD/loan combination can work for building credit, but it’s seen as more complicated than using credit cards for purchasing.

            Personally, I like to think of credit cards as the element fire. It’s vastly available, multi-purposed, yet potentially dangerous. On one hand fire can provide warmth, cook food, and be used as a source of light. However, if fire is used irresponsibly and tossed around or ignored for periods of time, the surrounding areas or nearby people will get burned.

            People can spend their lives trying to avoid fire altogether, but it’s much easier and more practical to teach the responsible and proper care of fire instead. This way society as a whole can see the economic gain of becoming a more skilled populace.

          • Lance Wyllie

            I feel strongly about giving kids cards. I worked a a consultant for one of the big banks in their credit card division. I can tell you they view users in the same way a dealer would view an addict. They want people hooked and coming back for more.

            The high is being able to buy things you normally would have to save for and looking like you have more than you actually can afford. The credit scores and reward points are used to keep people using cards.

            This changed my outlook on credit cards. I stopped using them. It took a while to get used to this, but now it is rather easy.

            I save instead of spend. I buy everything cash (or debit card).

            I now teach my kids to save 1/2 of everything they get. They all invest in dividend paying, stable companies, and when of age will not use credit cards and never try to keep up with the Jones’.

            Any financial planner worth their salt would tell any kid just starting out not mess with the fire that is credit cards.

          • Greg Haney

            Wouldn’t it be easier to teach the practice of full balance payments each month? If that’s accomplished, then it avoids your noted issue with credit cards.

          • Lance Wyllie

            Before credit cards Americans saved money, after credit cards we are a nation of debt. The mentality credit cards create vs the mentality of relying on savings and only buying things you can afford is vastly different.

            You are simply regurgitating what the banks and agencies want people to believe about credit cards.

            Unfortunately we have lost the ability to care for people as a whole, and only look at the sunshine of profits, rewards and what I can get out if it, no matter the risk to our society.

            Credit Cards encourage behavior that runs against the definition of Financial responsibility. Kids just getting their feet wet in in financial responsibility should be discouraged from using them at all, not taught how to use them.

          • Greg Haney

            You failed to answer the question.

            Additionally, your statements are coming off as personally abrasive, calling other commenters flawed, and regurgitative just for having an opinion which differs from yours. Every other comment on here has been positive about using credit wisely and how it has been beneficial for their financial being.

            I was hoping to understand valid reasoning behind your anti-credit remarks, but unfortunately what I’ve read are grandiose claims about the financial state overall, and incorrectly placed blame on credit cards without the support to back it up.

            I fully support this article, and any future articles Learnvest publishes advocating smart usage of credit cards as a financial tool. I wish you well sir, and encourage you to continue defending your stance on credit as there is always need for contrary opinion.

          • Lance Wyllie

            I have provided a reasonable argument to teach financial responsibility without the use of credit cards. You may be unable to see or accept this, but my answer to your question is obvious.

            My claims are not grandiose, and are rooted in facts that you seem to be willing to ignore, such as: Credit cards do more harm than good to young consumers. Since credit cards have become widely accepted, people carry far more debt than savings.

            I originally commented on this article because I thought the language of this sentence, “This apprehension toward credit could have dire consequences for these young consumers.” was irresponsible.

            Young consumers do not need credit cards, and choosing not to use credit cards will not lead them to ruin.

            My statements were on topic and relevant to the conversation, and to be so dismissive of this shows your failure to want to see the other side of the argument.

            The fact is, is you have not backed anything you have said with any kind of fact or statistic (other than your awesome credit history), and then accuse me of the same. Nice try.

            I believe in financial responsibility, and giving youth a credit card, a tool which carries high interest, harsh penalties, and encourages needless spending is far from responsible. You in fact, illustrated that credit cards are like fire. I agree, and guess who you don’t let play with fire? Those with no experience with it.

            Your opinion is the opinion of the banks and credit agencies, who stand to profit from giving the inexperienced a financial instrument that is more likely to cause harm than good. If you are offended by this obvious correlation, so be it.

            I wish you luck in your financial career, and advise you to step out of your comfort zone and look at how credit cards are marketed, how profits are made, and how this really affects everyday people.

            I also love how my comments all received down arrows, and all others received up arrows… hysterical. No agenda here. Amazing.

  • CS

    20 somethings just need to be smarter about credit card usage. I opened my first credit card at 18 and now 6 years later, I have never missed a payment. As long as it is engrained that one should only spend what they can afford, they should be fine. I love my credit cards (3) for the excellent rewards I receive from them (gift cards, airline miles, etc). My score is excellent and I didn’t run into any problems when financing my car and renting my apartment. Credit cards aren’t as scary as a lot of my peers make it seem, it’s been nothing but an excellent tool for me.

    • Lance Wyllie

      You don’t start teaching financial responsibility by giving someone a credit card. That is equivalent to giving someone a joint to teach them not to do drugs. Sure, a few will be ok, but why take that chance. Teach TRUE financial responsibility, not what the banks and credit agencies want you teach. Give me 100 kids, and you take 100 kids. You teach them your method (what the banks want), and I’ll teach them my method. My 100 will be in much better shape financially in 5, 10, 20 years.

  • Greg Haney

    Another Gen Y here, and most of my friends are in the situation the article describes, limited or no credit cards. I helped a friend recently apply for her first credit card, and had to go secured as she had absolutely no credit history even at the age of 26.

    I do my best to explain to my peers that credit cards are amazing tools with incredible rewards. Pay for everything on credit, but treat it like debit. Pay off the balance in full each month, no questions, and you’ll be surprised how fast and high your credit score rises, not to mention the free cashback and travel points from purchases.

    • A concerned millennial

      This is exactly the experience I’ve had with a couple of my friends.

      Thank you very much for continuing the discussion above! I have nothing left to add.

  • Guest

    I doubt it’s that my generation has “no problem” racking up student loan debt or believes student loan debt is “preferable”. College costs are soaring by the year. At age 18, I definitely wasn’t making the nearly $20,000 a year it can cost to get an education. With student loans the choice is often to get one or don’t go to college. Not a great choice and certainly not something I’d word as “preferable” to credit card debt…just more difficult to avoid.