After years of favoring debit cards and other pay-now payment methods, younger consumers are beginning to embrace traditional borrowing tools again. New research from Mercator Advisory Group suggests that millennials, particularly consumers aged 25 to 34, are becoming more comfortable using revolving payment products as online shopping, fraud protection, and digital payment convenience drive broader adoption. While younger cardholders remain cautious about fees and debt accumulation, their growing reliance on these payment methods signals an important shift in consumer behavior following years of tighter lending standards introduced after the CARD Act of 2009.
Since the Card Act of 2009, young adults had been avoiding revolving credit products in favor of pay now or pay before options due to the tighter restrictions that financial institutions placed on lending products offered to younger consumers. Before the Durbin Act was enacted, debit card use was rising, particularly among younger adults who preferred debit for everyday spending, and with growing student loan balances, many were reluctant to take on additional debt with high interest charges. As noted in a recent article from the Boston Globe, Mercator Advisory Group’s latest Insight Summary report from its CustomerMonitor Survey Series, entitled U.S. Consumers and Credit: Young Adults Return to Credit Card Use, found that use of revolving payment products continues to rise. Based on a survey of 3,000 U.S. adults fielded in June 2016, 63% of respondents reported using these products, up from 61% in 2014 and 2015 and 60% in 2013.
Adoption is growing fastest among consumers aged 25 to 34, with two-thirds reporting active use in 2016, compared to just three in five in 2015 and slightly more than half in 2013. Adults aged 18 to 24 remain less likely to use these borrowing tools, with fewer than half participating. However, the 25-34 age group is more likely to shop online, where payment methods offering fraud protection and dispute resolution tend to be favored.
Are the notoriously credit card-shy millennials getting more comfortable with debt?
Perhaps.
A new survey has found that two out of three young adults now use credit cards, up from just half of them in 2013. And for the first time since 2009, consumers between the ages of 25-34 are more likely than the average consumer to reach for plastic, according to a new survey by Maynard-based payments consulting company Mercator Advisory Group.
The study also found that millennials are less likely than average to pay balances in full every month, with only 40% doing so compared to the 52% average. Still, younger consumers appear highly conscious of fees and interest costs. Many are more likely to enroll in automatic payments to avoid penalties and are twice as likely as average consumers to contact issuers to negotiate lower rates or fees on their accounts.
Whether the credit card resurgence among young consumers means that they will fall into the same debt traps as previous generations is unclear, Augustine said.
They also offer older adults an important lesson in dealing with credit card companies: always negotiate.
While millennials and younger adults appear to be warming up to credit cards again, their approach to borrowing remains notably more cautious and strategic than previous generations. Features such as fraud protection, online shopping convenience, and rewards programs are helping drive adoption, but younger consumers are also showing a stronger focus on managing balances, avoiding fees, and negotiating better terms with issuers. As credit card usage among young adults continues to rise, financial institutions will need to balance growth opportunities with responsible lending practices to ensure this renewed engagement leads to long-term financial health rather than a repeat of past debt cycles.
Overview by Karen Augustine, Manager, Primary Data Services at Mercator Advisory Group