Millennials might be the most scrutinized generation in history. According to various claims, millennials are killing everything from diamonds to cereal. Conventional wisdom has been that millennials aren’t all that interested in credit cards, either. But is that really true?
In 2016, we reported that just 33 percent of 18 to 29 year-olds had a credit card. At the time, 55 percent of 30-49 year-olds had credit cards, along with 62 percent of 50-64 year-olds and 68 percent of those who were 65 or older.
Our latest data, compiled in January 2021, found that 43 percent of 18-31 year-olds have at least one rewards credit card. It’s not precisely apples-to-apples because we specified “rewards” cards this time (although almost all credit cards offer rewards), and the upper bound of the age range is two years higher. Nonetheless, it’s a close comparison.
Zooming in a bit further, 36 percent of 18-24 year-olds (Gen Zers) have at least one rewards credit card right now. That rises to 50 percent of 25-31 year-olds (younger millennials) and 63 percent of 32-40 year-olds (older millennials). The figure actually dips a bit for 41-56 year-olds (Gen Xers). Some 56 percent of them have rewards credit cards. Then it rises again, to 69 percent of 57-75 year-olds (baby boomers) and 80 percent of those who are age 76 or older (the Silent Generation).
What’s holding young adults back? I have a few theories:
Access to credit
This is probably the most important factor. One key milestone was the CARD Act, a federal statute that took effect in 2010. It included a provision that made it more difficult to get a credit card before age 21. It also established a tighter “ability to repay” standard for all cardholders and kicked credit card marketers off college campuses. These were included among other well-intentioned consumer protections. I’ve heard from many Gen Xers who got into trouble with credit card debt because cards were too easy to obtain during their college years.
The problem is that it often takes credit to get credit. It’s similar to getting your first job. Employers want you to have experience, but it’s hard to get experience unless someone is willing to hire you. That can be tough loop to break. Credit works much the same way. It’s an unintended consequence of the CARD Act which has left many people in their mid- and late-20s in credit limbo.
It certainly hasn’t helped that millennials have been hit with a double whammy of economic crises in their young adulthood. The financial crisis between 2007 and 2009 and the COVID-19 pandemic have both brought on unusually sharp recessions which made lenders especially cautious about risk. Since young adults are just starting out, they tend to have lower credit scores. So in periods where lenders are risk-averse, they’ll been one of the most affected groups. They’re also more vulnerable due to lower early-career salaries, less savings and overall financial situations that are simply more unstable.
All of this—plus the explosion in student debt—has made many young adults averse to debt. On one hand, that’s an entirely rational behavior which will serve them well. But sometimes debt is necessary. To buy a house or car, let’s say. And as unpleasant as student debt may be, having a college degree can substantially increase your earning potential in many industries. Also, remember that maintaining a good credit score helps with more than just getting a loan. Landlords, utility providers and even some employers look at your credit reports.
Necessity is the mother of invention, after all. If it’s harder to establish credit and if young adults are more wary of debt, then what are you supposed to do if you want to buy something that you can’t fully afford today?
The buy now, pay later industry has been growing like crazy. Companies such as Affirm, Afterpay and Klarna offer clearly defined payback terms which appeal to people who are afraid of open-ended credit card debt. Sometimes they’re even interest-free. Millennials are twice as likely as Gen Xers and three times more likely than boomers to have used one of these financing plans in the past two years, according to Cornerstone Advisors.
Ultimately, however, I do believe that young adults will eventually jump into the credit card pool. And they should. Credit cards offer much better rewards and buyer protections than other payment methods (these include fraud resolution, purchase protection, extended warranties and more). Credit cards also help you build credit in a way that debit cards and most buy now, pay later plans do not.
Older millennials have clearly gotten the message. The launch of the Chase Sapphire Reserve® card in 2016 heralded a new era of experiential travel perks that resonated with this age group. It also helps that the oldest millennials have turned 40 and are now more established in their careers and family lives.
I believe that younger adults will come around. But It just might take them a little more time. As Discover CEO Roger Hochschild explained during his company’s most recent earnings call, “In my decades in this business, there’s always something that’s going to kill off credit cards. But so far, the growth trajectory of the industry remains solid.”
Have a question about credit cards? E-mail me at email@example.com and I’d be happy to help.