Is Living on Credit the New Millennial Mantra?

When it comes to generational comparisons, no other generation gets scrutinized as meticulously as the millennials. Next in line, right behind the Baby Boomers who were the Golden child of the economy, millennials are known to face many issues. Plus, they’re often targeted and lambasted to have consumer behaviors that are outside the norm of previous generations.

For example, millennials are known not to buy homes immediately. They’re more likely to want to travel, prioritize freedom and love avocado toast way too much. Another thing that millennials were often accused of doing was killing the economy. From the diamond industry to the toy industry, everything was pinned on the millennials.

An Aversion to Credit

Similarly, when it came to credit, loans, and credit cards, it was decided that millennials hated credit. To an extent, this could be said to be true. Many millennials avoided getting credit cards,but when you consider it from their perspective, can you blame them?

This was a generation that grew up seeing the economy struggle and trying to fix itself during the Great Depression. For many millennials, even today, there is a general hesitancy to take a risk financially. Given this aspect, you will find that millennials are less prone to taking financial risks.

However, this does not always translate into financial maturity. Millennials are also the victims of the student loan bubble. Comparatively, millennials have the most amounts of student loans and debt than any other previous generation.

Slow to Adopt the Credit Card

Millennials are also a generation that was wary and slow to adopt the credit card. By 2012, only 41% of 20 year olds had credit cards. As the number of credit card users grows, so too does the number of defaulters who are unable to make credit card payments.

Today, the average debt that millennials carry comes up to $27,900, including their car loans, student loans as well as their mortgage and medical expenses. Additionally, the slow adoption means that millennials are less likely to understand the interest rate on their cards or understand how they are meant to pay them off.

A survey in the Annual Planning & Progress Study showcased what the source of debt with:

  • 15% saying it was their mortgage
  • 10% claiming student loans
  • While a vast majority claimed that it was credit card debt

Given these numbers, it is easy to see that for millennials, credit card debt is a significant issue, and they often lack the means to tackle it with ease.

Low Credit Card Debt but It’s Growing

Previously, millennials and the younger generations were wary of using credit cards and accruing credit card debt. However, the numbers have started to rise and show that millennials might be adopting credit cards more readily than might have been previously supposed.

The average credit card debt grew by 7% for millennials aged between 23 and 38. This increase is among the top highest increase in credit card debt among all of the generations. It can be an indicator that they are becoming more comfortable with the use of credit cards.

On average, millennials were found to have an average credit card debt of $4,712, which is lower than the national average regarding the same issue.  The national average for credit card debt was $6,028.

Despite this factor, signs are already present that show that credit card debt may increase over the following years. Other generations like Gen Z and Gen X have also shown an increase in this area. Gen Z’s credit debt grew by 11% (the highest credit growth of any generation). In stark contrast to this, baby boomers and the older generation had a decrease of 1% in their credit card debt history.

Credit Debt Growing with Age

Apart from having the most credit, it’s noticeable to see that millennial credit debt grows more prominent as they age. However, what’s worrying to note that the two age groups of millennials (18 to 29 year olds and 30 to 39 year olds) have earned a combined total of $210 billion in credit debt alone.

In contrast, their combined total is equal to the $200 billion credit debt that the 40 to 49 year olds have or the $210 billion that the 50 to 59 year olds have accruedseparately. As a person ages, their debt capacity increases. Plus, they face more life circumstances that make it impossible for them to pay off their ever-growing loans.

The Federal Reserve Bank of New York observed that with millennials, a large part of their debt comes from their student loans. They’re a prudent bunch that is not known for spending recklessly. Hence they were often accused of ruining the economy by choosing not to spend money. But in this regard, being prudent is not helping anyone.

Living on Credit – Not By Choice

To be honest, the truth here is more surprising, especially given the fact that no one can see it. Yes, millennials might be living on credit, but it’s not because they want to. In 2018, data from the Federal Reserve in the US highlight that 40% of adult millennials are unable to shoulder emergency expenses of up to $400 or more because they did not have the money at all.

Another poll further highlighted that four in ten people rely on the credit card for their day-to-day grocery expenses. Similarly, 20% collected debt due to sudden life events such as medical emergency bills, car repairs, vet expenses for pets, and more.

It was also noted that younger consumers today have more expenses to deal with, higher inflation rates, a non-flexible low wage and make payments for student loans, credit card debts as well as mortgages. Given their monthly debt burden, it is not surprising to note that millennials more face issues on a monetary level than previous generations.

Final Thoughts

Millennials are struggling the most out of any generation to pay off credit card debt. They’re also more likely to face monetary problems given the expenses they face, the inflation as well as the increasing cost of living. If you want to learn more about this aspect, get in touch with Winjit today.

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