Did you ever think you would need to encourage a generation to use their credit cards? Apparel Magazine, a retail trade rag, talks about how low credit card usage is hurting their industry. I am pretty conservative about taking on debt but back in the day, when this boomer was hitting his mid-twenties and working in the fledgling credit card business, no one ever had to tell me to use my credit card. It was there, loaded with open to buy, and never shy about leaving my wallet. However, today, with the CARD Act limiting college student credit, Student Loans outpacing credit cards, and easy to get auto loans, no wonder there is no money left to go shopping!
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GoBankingRates survey found that most millennials had less than $1,000 in their savings accounts, while nearly half had nothing saved at all.
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To make matters worse, this share of millennials with no savings is on the rise, up from 31 percent in 2016 to 46 percent in 2017.
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Access to credit has dried up as well. Separate studies from 2016 found that only 33 percent of millennials own a credit card, but they are applying for credit cards at a faster clip than previous generations.
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Many of these applicants are getting rejected and choosing not to reapply.
Millennials like to transact on debit. The credit industry is making big bets on mobile, but how long will this be before transactions launch? Mobile has relatively slow takeup today; unless this generation shifts usage, mobile technologies will be underutilized.
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The biggest obstacle keeping millennials from being approved for credit cards appears to be their credit scores. 67 percent of consumers under the age of 30 have a sub- or non-prime credit score, while 33 percent do not have a score at all, due to lack of credit history.
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It is a bit of a chicken-and-egg situation; credit cards help people build credit, but people are having a hard time getting credit cards because their credit scores are too low. Between lack of savings and no credit cards, the millennial shopper is not the ideal consumer for retailers.
Student loans with 20-year repayment terms are likely to impact this cohort throughout their housebuying years and through retirement. It does make you reflect about the significance found in 70+-year-old card holders being an attractive market, in some ways, than incoming millennials.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group