It is often said that the younger generation, or the Millennials, are saying no to credit cards. Is that really true? And if so, what are the causes behind it?
There are a variety of reasons why Millennials might be saying no to credit cards. It’s not necessarily that they are rejecting credit cards, but perhaps showing less enthusiasm for credit than their parents’ generation.
That’s not to say that Millennials are not in debt, because they are. Read our guide to learn more about what counts as a Millennial and why they’re not taking up credit cards as quickly as the last generations.
What is a millennial?
Millennials as the name suggests relates to the turn of the millennium, but specifically to a generation of people who spent their young adulthood primarily in the 2000s. Some say it means you would have been born in the mid 1980s up until the early 2000s.
Prior to the millennial generation, there was Generation X (and before them the baby boomers), and Millennials are sometimes referred to as Generation Y.
But what makes Millennials so different from other generations that they should have their own category?
Each generational category definition usually sums up a type of upbringing or change in society that has directly affected that group more than others.
Many Millennials have grown up with and probably have been impacted by the 2007 global recession. On top of this, they live in a more technologically advanced world than Generation X.
Perhaps the most important aspect for Millennials is the lower risk they now take in their lives compared with Generation X.
Most research shows that Millennials are less likely to be involved in drug abuse, teen pregnancy and youth violence compared with previous generations during young adulthood.
Why are Millennials saying no to credit cards?
There are a number of reasons for this, but first of all is that they are taking less risk compared to their parents’ generation.
With borrowing money and paying back debts there is added risk, so generally the Millennial generation will try to avoid having debts where they can.
However, this is not the only reason that Millennials are saying no to credit cards.
Until the late 1980s when debit cards became the norm, when people opened up a bank account they got a cheque book and withdrew cash from a branch in order to spend money at the shops.
Credit cards were a much easier way to pay for goods and services at the register when you did not have cash in your pockets or when cheque was just too inconvenient.
For Millennials, grew up enitrely debit cards. From an early age most Millennials would have received a debit card with their first bank and were able to spend money more freely. And with contactless payment debit cards, paying for everyday items is even quicker and more convenient than it ever was.
Getting a credit card is now a more considered decision because if you do not need it for the convenience, then what do you need it for?
However, it’s never as simple as that. Despite Millennials taking less risk than the previous generation, they also have plenty of debt, which ultimately limits their desire for more credit and debt.
Millennials and debt
Many Millennials are more likely to have large student debts to their name that they will not finish paying off until they nearly reach retirement age, if they even manage to pay it off within their lifetime.
This experience with debt fairly early on in life not only adds to the more risk-averse lifestyles they lead, but also can frighten them off the idea of borrowing more money.
However, this is not always enough to stop Millennials borrowing. With the recession in 2007 and rising costs for the Millennial generation, borrowing has unfortunately become necessary for many.
The entire industry of payday loans grew massively during this period because many people in the Millennnial generation needed to borrow money quickly.
Unfortunately, many of the people growing up in the Millennial generation have not always been so smart with their money. While taking less risks is commendable, many have neglected their credit scores and made it harder to borrow money in future.
Contrary to what some might think about credit scores, if you never borrow any money, and thus have actually no debt besides your student loan repayments, you credit score is likely to be weaker.
This is because you have no history of borrowing money and repaying it, so lenders will question how likely it is that you will pay them back the first time you borrow from them.
Should Millennials be taking up credit cards?
Millennials should be looking at the bigger picture of their financial habits. Borrowing can be bad, especially if you go to a payday lender, which doesn’t usually improve your credit score, and can lead to debts spiralling out of controlling.
Borrowing can also be bad when you don’t have a plan in place to pay it back. But not all borrowing is bad. Credit cards, when used correctly, can help many people budget more effectively, and even save money.
For some, credit cards can also provide rewards that you just would not be able to get when spending on debit card or with cash.
Ultimately it comes to down each person’s individual circumstances.
If you have finally start bringing in a regular income, and now a portion of that money goes to student loan repayments, perhaps wait until you’re fully settled in and comfortable with your monthly budget before looking at taking out a credit card.
Millennials should be looking to avoid having debts they can’t control and make sure they can continue improving their credit scores.
Having a bad credit score can also harm your chances of getting a mobile phone contract or a good deal on your energy bills. Many companies, not just lenders, will check your credit score before agreeing to a contract with you.
- Student credit cards – If you’re at university, it may be worth getting a credit card to help with your day-to-day finances
- First credit card – Getting your first card is important to help build up your credit history
- What is APR? – What does APR mean and why is it important?
- Who can get a credit card? It’s important to check if you can get a credit card before applying