Are Millennials Changing Their Attitude Toward Credit?

Since the passing of the Durbin Amendment unleashed the first wave of Fintechs, conventional wisdom held that millennials preferred using debit cards to amassing credit card debt. But it may be time for that assumption to change.

Until last year, millennials’ preference for debit cards seemed pretty well established.

According to the Federal Reserve Bank of Atlanta, from 2015 to 2019, Americans between the ages of 25 and 34 years old used their debit cards 44% more often than their credit cards.

“After taking close to 90,000 calls, I can say with 100% certainty that millennials as a whole definitely prefer using their debit cards over their credit cards,” a former call center employee named D.J. Hoskins wrote on Quora. The reason, Hoskins said, was the desire to avoid high rates of cumulative interest from creating a spiral of increasing debt.

As recently as 2019, Deloitte surveyed U.S. consumers with at least one credit card and one debit card and found that 52% of Gen Z and 41% of millennials preferred to use debit cards. “With younger consumers’ use of digital payments only expected to grow — 44% of Gen Z and millennials expect to use their phone for most of their payments in the future — the need to revisit the credit card value proposition for the younger segments has possibly never been greater,” researchers Zachary Aaron and Megan Scala wrote.

Yet even before the virtual ink was dry on the Deloitte report, consumer behavior was changing. According to the Federal Reserve Bank of Atlanta, the number of debit card payments in a typical month for cardholders between the ages of 25 and 34 fell from 28.73 to 22.40 between 2019 and 2020. Conversely, the number of credit card payments in a typical month for the same group rose from 17.05 to 19.61.

If the trend continues, millennials could be pulling out the credit cards as much or more than their debit cards in 2021.

Ron Shevlin, managing director of Fintech research at Cornerstone Advisors, predicted a credit card comeback last year in November. According to Shevlin, three factors would boost credit card spending: the economic recovery, greater awareness of credit card rewards, and growing popularity of credit builder cards like Cred.ai and Perch Credit. “About three in 10 millennials, a quarter of Gen Xers, and one in five Gen Zers express strong interest in this type of card,” Shevlin wrote, citing research by Cornerstone Advisors.

By June of this year, the data was tilting in Shevlin’s favor. According to the Federal Reserve Bank of Atlanta, close to 80% of millennials had a credit card in June 2021 compared to just two-thirds in 2019.

In August, Catherine Thaliath, a project management expert at the Atlanta Fed, described a “mind shift among the younger generation.” She pointed out that more millennials are buying homes now and opting for longer-term investments.

The flexibility of Canopy’s loan management and serving platform makes it a top choice for credit builder products. If millennials have, in fact, shifted their attitude toward credit and are using it to invest in themselves and their future, that could be a positive trend indeed.