Giving Younger Americans the “Credit” They Deserve

college_credit_card.pngRack! Rack!  Remember the sound of those manual credit card machines that used to imprint the card info onto a sales slip? Now, with new technology and smartphones, a credit card can be swiped almost anywhere with ease.  Need a new credit card?  Grab your laptop and sign-up for one in 10 minutes.   This accessibility can make “racking” up debt pretty easy if you aren’t careful. This means that almost anyone, those darn irresponsible college students and recent graduates included, can get a credit card.  We all know the stereotype of the spendthrift twentysomething running around maxing out their cards.  However, according to new data and trends, that scenario may be less common than we think.

According to FICO, many younger consumers don’t even own credit cards.  I spent a year out of college before I got mine.  FICO’s data shows that the number of American consumers ages 18 to 29 that do not own credit cards increased to 16 percent in 2012.  This was an 8 percent jump from 2007.  Additionally, the average debt decreased from $3,073 to $2,087 for the same age group.  If you just take college students into consideration, only 35 percent have credit cards in their name. This is down from 42 percent two years ago.

While talking to a dozen of my friends and peers who have graduated recently, I found that only about half currently own a credit card.  However, nearly all of them have a debit card.  My friends who didn’t have credit cards told me they didn’t like the idea of buying something that they couldn’t immediately afford.  Several already have debt from college loans and are aware of others or have parents who are struggling with debt.  A few admitted that these negative experiences have affected their stance on credit cards and they didn’t want to get a card until they felt it is absolutely necessary or until they had a higher monthly income.  There’s a good chance they will be getting a credit card later rather than sooner.   Landing a full-time job with a good salary can feel more like trying to become a member of an exclusive ultra, top secret club for those without three to five years of job experience.  For now, coupons and other special promotions have replaced credit cards and saving has become the main focus

How do these numbers compare to the rest of the population?   The good news is that total credit card debt has gone down in recent years.  According to the Federal Reserve Bank of New York, credit card balances decreased by $19 billion the first quarter of this year.  The Federal Reserve’s Survey of Consumer Finances also stated “Overall, the median balance for those carrying a balance fell 16.1 percent to $2,600; the mean fell 7.8 percent to $7,100.”  While this data is from 2010, it tells us that credit card debt has been decreasing for several years.  While the average family’s credit card debt is about $15,000, the lower median hints that this is likely due to a few heavy spenders at the end of the spectrum.  The bad news is that overall debt has increased for consumers over 40.  According to CNN Money,” FICO scores have fallen 1.7 percentage points among the 40 to 49 age group, 1.8 percentage points for those ages 50 to 59 and 3.8 percentage points for consumers 60 and older.”   Conversely, FICO scores have gone up for 18 to 29 year olds. Those with scores of 760 or higher jumped from 8.6% in 2005 to 11.2% in 2012. 

I think it’s great that young adults or “millennials” are spending less and saving more.  Many of us have seen how stressful escalating debt can be when expenses and spending aren’t handled responsibly and we’ve learned from those before us.  Some are even investing and saving for retirement much earlier than our parents. At first, I was surprised to see data showing that young adults spend less on cars, homes and entertainment than other generations. However, most of my college buddies would agree that we aren’t spending less and avoiding credit cards due to a rebirth or a new age of responsibility, straight priorities and good honest conservative spending. Many of us, myself included, are simply too uncertain about the future to spend our money on things we want but can’t afford.    Even for the most spendthrift it’s tough to justify spending money on that sweet LED TV for the new apartment when were not sure if we’ll have a job in three months.  Whatever the motivation may be, the fact is that young adults are spending less.  The ones that do have credit cards are using them more strategically and responsibly.  For that, I think we still deserve a little more “credit”.