Millennials are Shunning Credit Cards for All the Wrong ReasonsPosted July 13, 2016 in News, Personal Finance
When most people think of millennials, acronyms like FOMO (fear of missing out) and YOLO (you only live once) come to mind. Millennials have been labeled financially irresponsible by many. When you think of millennials, you probably picture them with wallets full of credit cards. Perception is often reality, but not in this case.
Millennials are actually the least likely to have a credit card out of any generation. Only a third (33 percent) of American millennials – those between the ages of 18 and 29 – use a credit card, finds a Bankrate survey. Canadian millennials likely share the same sentiment. Meanwhile, 55 percent of those between the ages of 30 and 49 have a credit card, while over two-thirds (68 percent) have a credit card over the age of 65 – that’s double the rate of millennials.
Millennials aren’t the only ones staying away from plastic. Credit card usage is low among minorities, those earning below $30,000 and those without a college education. On the other end of the credit card spectrum, baby boomers, college graduates and those with a take home pay of over $75,000 are more likely to have credit cards.
The Financial Crisis Still on the Minds of Millennials
Growing up during the financial crisis, many millennials aren’t too keen on using credit cards. Even with the economy and the job market on the mend, it hasn’t changed their minds. But shunning credit cards isn’t the answer. A mix of credit types is part of a good credit score. Millennials won’t build a solid credit history by never borrowing money. In fact, no credit history can almost be as bad as a bad credit score.
An explanation why millennials have FOCC (short for “fear of credit cards,” a new acronym we just made up) is because they don’t actually understand how credit cards work. For example, some don’t know how interest is charged. They may assume they will be charged interest without realizing there is a grace period before interest starts accruing.
Knowledge is Power
If you’re a millennial, you don’t have to be left in the dark about credit cards. There are many resources to learn more about credit cards. The CreditCardsCanada.ca Education Centre is a good place to start. Knowing the basics of credit cards will help you maximize your reward points, while minimizing costly interest and fees. The government’s also doing its part educating people young and old about credit cards. The FCAC has a section of its website dedicated to credit cards.
The Bottom Line
Credit cards are an integral part of a healthy credit score. They’re a powerful financial tool when used responsibly. They offer many benefits, including better cash flow, added consumer protection and of course, reward points. If you plan to make a major purchase like a home one day, getting a credit card can help build a solid credit foundation.
If you follow the golden rule of credit cards and only buy what you can afford to pay in full, there’s little reason for millennials and other generations to fear credit cards.