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Seven years after the end of the Great Recession, many young adults remain wary about using credit, a new Bankrate survey found.
While a majority of older Americans own a credit card, just 33% of adults between the ages of 18 and 29 say they have one, according to our Money Pulse survey.
Even as the economy and job prospects have improved, this generation hasn’t warmed to the idea of using credit as a financial tool. Two years ago, when Bankrate commissioned a similar survey, nearly two-thirds of young adults said they had no “major” credit cards, defined as cards issued by either American Express, Visa, MasterCard or Discover.
The survey was conducted May 19-22, 2016, by Princeton Survey Research Associates International and included responses from 1,002 adults living in the continental United States. The margin of error is plus or minus 3.7 percentage points.
“I’ve never owned nor have ever wanted to own a credit card,” says Kristian Rivera, 25, a digital marketing specialist in New York City. “It wasn’t really a decision that I made, but growing up I was warned of the risks of having a credit card and advised to put off getting one as long as possible.”
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Learning from the past
I spoke with a number of young adults who don’t own a credit card. They said they either shunned credit because of previous financial problems they encountered, or because they saw how debt affected their loved ones during the recession.
Revolving debt, which is made up mostly of credit cards, spiked to its highest level ever — $1.02 trillion — in July 2008 in the middle of the recession. It slowly fell over the next few years as cardholders either paid down their cards or issuers wrote off bad debts.
“We don’t want to make the same mistakes our parents made in the past,” Rivera says. “We want to do things smarter and safer.”
Darnell Billups, 29, a U.S. Marine Corps captain stationed in Twentynine Palms, California, says when he and his wife, Natasha, married in 2011, they had a combined $40,000 in debt, including credit cards and student loans. They paid off their debts in 2013, just 2 weeks before Billups was deployed to Afghanistan for the second time.
“Our thing is, we will never have a credit card ever again,” Billups says.
More than just credit cards, the couple wants to steer clear of all debt. They recently opened a photography business, Emmanuel Photography & Designs, without taking on any debt, and they plan to eventually buy a house using only cash.
“It’s been just wonderful because we don’t have to pay anyone back,” he says.
Who is using credit?
Young adults aren’t the only demographic group shying away from credit card use. Our survey found that you are unlikely to own a credit card if you:
- Have an annual income of less than $30,000.
- Haven’t attended college.
- Are black or Hispanic.
Credit card ownership is most prevalent among:
- Baby boomers.
- College graduates.
- Adults with an annual income of more than $75,000.
- Those who identify themselves as Republicans.
Why establishing credit matters
For young adults, one of the quickest ways to build credit is to get a credit card and use it responsibly.
Without a strong credit history, millennials may find it more difficult to get an auto loan or a mortgage when they’re ready for those financial commitments, says Kent Thune, president and owner of Atlantic Capital Investments in Hilton Head Island, South Carolina.
Credit is a financial tool; debt is a financial problem.
Marc Aschoff learned this lesson when he and a group of friends tried to buy a rental property shortly after college. But since Aschoff had never had a credit card, he hadn’t developed a solid credit history and none of the mortgage brokers he spoke with would qualify him for a mortgage.
“Needless to say, this isn’t something I considered,” says Aschoff, 25, of Hoboken, New Jersey.
Aschoff and one of his business partners, Chris Sorrentino, also 25, say they now own credit cards only to help with their credit scores. And building up their credit helped them qualify for a mortgage.
Michael Zonin completes demo work on a house he and 3 friends bought in Springfield, New Jersey. The friends plan to renovate the house and then resell it.
They now own 3 rental properties near Lehigh University in Bethlehem, Pennsylvania. In January, Aschoff, Sorrentino and 2 other partners in their real estate firm — Acrez LLC — purchased a house in Springfield, New Jersey, with cash. They are now renovating and hope to resell.
“The only debt we really take on is mortgage debt,” Aschoff says. “Other than that, debt is not our friend.”
Other ways good credit helps
Your credit needs extend beyond a car or a house. Without a credit card, you may have a hard time getting a cellphone contract or renting a car, says Rod Griffin, director of public education for the credit bureau Experian. Your credit score determines whether you qualify for certain insurance policies.
“As they go through life, they will need access to credit in order to do the things we want as adults,” Griffin says.
Difference between credit and debt
Many of the young adults told me they don’t have a problem with credit; it’s debt they worry about. Without a credit card, though, it’s harder to get into debt.
Aversion to debt is generally a healthy outlook, Griffin says, noting, “Credit is a financial tool; debt is a financial problem.”
“There’s a fear of debt,” he says. “I think you have to have a healthy fear of debt, just not sheer terror.”
Your credit card doesn’t impress
While the majority of American adults own a credit card, that piece of plastic isn’t something that can impress most people.
The Bankrate survey found more than 8 out of 10 adults say if they were eating dinner at a restaurant with another person and that person paid with a premium rewards credit card — like a platinum or black card — it would leave no impression.
Indeed, the days when credit cards were seen as status symbols are probably numbered.
“You don’t see commercials and such on television and there’s a guy that pulls out his gold card and people are looking at him admiringly,” Thune says.
Allen Walton, 28, owner of the online retailer SpyGuySecurity.com in Richardson, Texas, says he thinks if people actually saw someone pay with a high-end card, their responses might be different.
“People that say they aren’t impressed, that’s not necessarily true,” Walton says.
“But I guarantee if someone pulled that (premium card) out to pay for an $80 steak one night, anyone that saw would make a mental note of it because they themselves don’t have it and know they’re probably not ever going to be given the opportunity.”