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Last updated: 23/07/2020 | Estimated Reading Time: 4 minutes

Millennials and credit cards

The younger generations are, it seems, far less likely to take out credit cards than the older generations these days.

We’ll explain why this lack of enthusiasm for credit cards exists among the younger generation, or millennials, and go over whether or not it’s a good thing.

In This Guide:

What is a millennial?

The term millennial refers to the generation whose young adulthood has been spent in the 2000s, generally thought of as those born between the mid-80s and late 90s. Also known as generation Y (following generation X), people of this demographic are characteristically less likely to take risks than their predecessors in a range of fields from contraception to finances. This added degree of precaution applies to financial products - millennials, it seems, are much more reluctant to take out credit cards than their predecessors.

Are millennials taking out fewer credit cards?

Research shows that credit cards are less popular among millennials than they are among older generations.

Part of this is down to the reluctance to take more financial risks but this does not tell the whole story.

As members of the millennial generation were growing up, debit cards had become the norm and so many had one issued when they opened up their first bank account.

This was not the same for those who reached young adulthood before debit cards became standard in the 1980s. Until then, cheque books were issued as standard and cash was withdrawn from branches to make day to day purchases.

For people of these older generations, credit cards presented a convenient method of payment as well as a quick and easy way to borrow money.

For millennials though, the convenience of a credit card in terms of quick and easy purchasing is less of a big deal now that debit cards, and in particular, contactless cards, are more or less ubiquitous.

Should millennials be using credit cards?

While avoiding financial risks can be admirable, avoiding credit at all costs can actually be damaging in the long run.

If you’ve never used any credit, your credit rating is likely to be rather weak, as a prospective lender has no proof of your ability to borrow and pay back money responsibly.

The best thing you can do if you want to improve your credit score, and thus your ability to take out loans in the future, is to use a credit card with a relatively low limit. If you can take out a card when you don’t necessarily need it, and pay off the whole balance promptly and consistently, your credit score will improve over time.

Millennials and debt

This reduction in risk taking does not directly translate into a reduction in debt. In fact, the high level of debt among millennials is arguably partly responsible for their added precaution when it comes to credit cards.

Student debt is a big problem among members of generation Y, as university fees have gone up steadily over the last few decades. Indeed many millennials are left with staggering student debt that is unlikely to be paid off until they are close to reaching retirement age.

This debt is a double edged sword: on the one hand it reduces the amount of capital each young person has available, and on the other it makes them more reluctant to borrow more money and add to the already huge pile of debt they are buried under.

The lack of capital and increasing price of life has forced many millennials to turn towards short term solutions like payday loans. Indeed the whole payday loan industry exploded thanks to members of generation Y needing money quickly.

Unfortunately, payday loans can actually make things worse in the long term as the high APR associated with them makes them harder to pay off than a conventional loan, thereby worsening the credit scores for many who use them.

Credit ratings are another traditional problem that millennials are facing – the lack of experience with long term borrowing and the prevalence of payday loans means that many are faced with limited or poor credit scores.