Millennials in the U.S. are Shunning Credit Cards – It’s a Different Story in CanadaPosted July 31, 2017 in News
In the U.S. millennials are avoiding credit cards, but it appears to be a different story in Canada. Many U.S. millennials are shunning credit cards with memories of the global financial crisis still fresh in their mind. Canada wasn’t nearly as affected as the U.S. from the sub-prime mortgage fiasco, so it shouldn’t come as any surprise that millennials here are a lot fonder of credit cards.
These findings are backed up in a recent survey that found that over a quarter (27 percent) of Canadian millennials spent over half of their disposable income using credit cards. This compares to 16 percent of baby boomers. That’s not all. 95 percent of millennials said that they carried at least one credit card in their wallet, compared to 80 percent of baby boomers.
Here’s another interesting tidbit the survey uncovered: baby boomers don’t seem to show any preference towards credit card reward type. Boomer showed no preference toward cash back, travel reward or low-interest credit cards. Meanwhile, millennials are a big fan of cash back and travel rewards.
Here’s why this is an interesting trend to watch. In the most recent quarterly report on borrowing from Equifax, millennials (those between the ages of 26 and 35) had the single largest increase in average debt. The average level of non-mortgage debt for this group is $17,314, up 4.5 percent from the previous quarter. That compares to an increase of 2.8 percent for all of Canadians.
There was a lot of worry that seniors were carrying a lot of debt into retirement, but it appears as though millennials are racking it up faster for the time being. This is especially concerning, especially with some economists predicting that the Bank of Canada will raise interest rates twice this year. If the banks follow suit and raise prime rate, any debt tied to prime rate (lines of credit, student loans, variable rate mortgages, etc.) will be a lot more costly to service.
Why are Canadian Millennials Using Credit Cards More Often?
Much of the growth in credit card usage from millennials is likely due to the push towards a cashless society. It’s becoming easier and easier for millennials to part with their hard-earned money. With the widespread usage of Mastercard PayPass and Apple Pay, it’s a lot easier to make purchases and avoid using cash these days. While this is convenient, it comes at a cost: it’s easy to lose track of how much you’re spending.
So how do you use credit cards wisely and avoid the pitfall of overspending? By treating your credit card like cash. Before you swipe your credit card, give yourself a timeout and ask yourself whether you really need to make this purchase. If you’re unsure, it’s best to give yourself a 24 hour cooling off period. Chances are you’ll realize you don’t really need the item you had an inkling to purchase.
The Bottom Line
When used wisely, credit cards can be a powerful financial tool in your wallet. Just remember the cardinal rule of using your credit card: don’t spend money that you don’t have. By taking advantage of credit card benefits – rewards, purchase protection and cash flow management – you can make the most of it, while avoiding the pitfalls.