
How Millennials Became Spooked by Credit Cards - e15ctr0n
http://www.nytimes.com/2016/08/15/business/dealbook/why-millennials-are-in-no-hurry-to-take-on-debt.html
======
ljoshua
Huh, that's weird. I fall into the age bracket mentioned in the article, but
use a credit card for nearly every single purchase for 1) the fraud protection
benefits and 2) points. With the anecdotal group of people I know most people
are fine using CCs.

On the other hand, I pay off the statement in full every month, and therefore
never have revolving debt that extends beyond 30 days. The article wasn't
clear whether or not such credit would have counted in their analysis or not.

~~~
blakeyrat
At my bank, the fraud protection for any card with a VISA logo is identical
whether it be debit or credit. Due to that, I never bothered with a credit
card. I don't _want_ the ability to spend money I don't have.

I did end up finally getting a credit card (in my mid-30s) not because I want
one, but because I wanted a back-up card for when my debit card is out of
commission for whatever reason. It's a constant struggle to remember to do
transactions on it so it doesn't get closed for inactivity.

~~~
Obi_Juan_Kenobi
Here's the issue: you're paying for CC transactions anyway (cost gets passed
on to consumer), so you might as well try to get some of it back (with reward
points, etc.).

I've never understood the credit vs. debit aspect. I know my budget and can
easily just not spend more than I can afford. Paying the balance is automatic,
so the only difference between using one card or another is that one gives me
an e.g. Amazon gift card every couple months.

------
nostromo
My sense is that Millennials have a less rosy view of their future economic
situation than did generations past.

I don't know if it was coming of age during a banking crisis or huge student
loans or expensive housing or what.

But obviously if you're unsure about your future earning potential you'll be
more hesitant to rack up future obligations.

~~~
Bartweiss
Notably, the suggestion that "it's fine if you pay off your card every month"
or "loans are sensible if you get good rates" only holds for people with some
kind of faith in stability.

With a stable job and some savings, paid-off credit cards and zero-apr loans
are great tools. If you're worried about losing the job and barely making rent
(like _many_ millennials are) then even 'safe' debt becomes troubling.

~~~
spdionis
Or if you don't want to chain yourself to the job and like the financial
flexibility to take time off whenever you want.

------
sotojuan
This is interesting and I am glad less people are using credit cards. It's
really not a good idea for the majority of people in my experience.

I got mine when I was 20 and I've never paid it late or gone over my limit.
Most of the time I coordinate my payments with the day I get my direct deposit
(I've tried automatic payments, but too paranoid that they might not work!).
Discover gives me pretty good Amazon cash back too, so every few months I get
enough points to get something small for free or very cheap.

It wasn't until much later that I realized not everyone is like me and most of
my peers had a lot of debt accrued over the years. They're definitely
dangerous.

~~~
johnward
Maybe I lack self control but it was really easy to go from paying off $30k in
credit card bills every month, to not having that income anymore, to being
$30k+ in CC debt.

~~~
antisthenes
I'm almost afraid to ask, what does one spend $30k a month on?

That just sounds like an exorbitant amount of money to me, maybe because I'm
not in a developer salary bubble.

You would almost have to be partying/shopping full time in order to rack up a
$1000 daily bill.

~~~
johnward
It was basically advertising costs for different pay per click/impression ads.
I was basically just doing arbitrage from lead generation to PPC. Though I did
get a little frivolous and do some remodeling and got married and put a lot of
that on CC. There's probably a vacation in there somewhere too.

I used some of the money to pay off my car and put a downpayment on my house
but I still have a negative worth. I didn't really plan this to spam my blog
but I wrote about it on the site in my "about me".

------
cmurf
It still boggles my mind how prevalent credit cards are in the U.S. and how
almost non-existent they are elsewhere, in particular Europe and Japan where
debit cards are used. They don't call them debit cards, but rather cashless
payment or what have you. And the merchant fees for these cards are far, far
lower than credit cards which makes it even more baffling to me.

ADD: "Without a substantial credit history, it is much harder to take out a
home mortgage, for example." Why is this? It's not true in other countries
where credit cards aren't used anywhere as much.

~~~
Vexs
I honestly don't understand why they're so popular here either. A debt card is
basically the same as paying with cash, because you have the money. With
credit, you're still doing the same thing, but you pay later- either way
you're still paying the same amount, but with credit, you can fuck yourself
pretty easily.

Also, it's because credit cards are so prolific here that it's harder to take
out a mortgage, if everyone has a good credit score but you, then you're not
going to be at the top of their list.

~~~
StillBored
Debit cards have traditionally had less fraud protection in the US, and I
don't think any of them have a rewards program.

So, why should I use one over my credit cards automatic 1% (or more) in cash
back?

If I want cash equivalent, I use cash...

~~~
cmurf
Fraud protection is required by law. The reason why the protections differ is
because of different laws, Fair Credit Billing Act applies to credit cards,
and the Electronic Fund Transfer Act for debit cards. The only reason fraud
protections would not be identical between credit and debit cards is because
Congress doesn't care enough to make them the same, and that might have
something to do with being under the boot of the finance industry.

[https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-
cr...](https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-credit-atm-
and-debit-cards)

------
h4waii
What's really scary is the fact that many of these individuals don't consider
the benefits and rewards of using a credit card -- free flights, cash-back,
insurance and extended protection, and best of all it's not your money. You
get to hold on to your cash for a month's worth of interest and you get fraud
protection.

Credit cards are tool and, just like most tools, should be used with proper
awareness and thought-process. None of the examples in the given article are
fallouts of "using credit cards", but having runaway debt in the first place.

This article really just emphasizes the fact that we are living in an age of
complete lack of personal responsibility and self-control, where you can blame
an institution for your inability to spend.

~~~
jawns
One thing that even people who consider themselves financially savvy (e.g.
those who pay off the credit cards in full each month rather than carrying a
balance) often fail to realize is that credit card companies are middlemen;
the fees they charge the merchant -- typically around 3% of each transaction
-- ultimately get paid for by someone, and that someone is you.

If we all were less beholden to our credit cards, and/or the public and
retailers were more comfortable with higher prices for credit card purchases,
we might see cash prices go down. The savviest among us would probably lean
more on cash for smaller purchases and reserve credit cards for only big-
ticket purchases (because of the transaction/purchase protection benefits).

~~~
infinite8s
Most credit card merchant agreements prohibit merchants from offering a
discount or lower price for paying in cash.

~~~
icebraining
Those clauses were struck down in a settlement in 2012 following a lawsuit by
merchants against Visa and Mastercard:
[http://www.nytimes.com/2012/07/14/business/mastercard-and-
vi...](http://www.nytimes.com/2012/07/14/business/mastercard-and-visa-settle-
antitrust-suit.html)

------
Mc_Big_G
Boohoo. Millennials don't want to be enslaved by debt and the corporations
that profit from it. I've told my kids since they could understand that credit
cards are evil and are to be avoided like the plague unless you pay them off
religiously every month. I'm glad to see they're listening.

~~~
space_ghost
I watched my parents struggle with credit card debt for decades - there's no
way I'm going through that. Also, even though I've never had a credit card in
my life, I had no trouble getting a home mortgage with a fantastic interest
rate. This article smells like it was written directly by the Credit Card
Industry, which isn't what I would expect from a reporter that's obsessed with
Bitcoin.

------
bbctol
The use of credit history and score to determine worthiness in all sorts of
purchases is a horrible construction that must be destroyed. I got a credit
card for no reason other than to build score; I've never spent money I didn't
have in my life (which seems responsible to me!) but I still have to go
through this silly rigmarole of purchasing and then paying off to prove to
future agencies that I'm responsible.

~~~
jasonmp85
> this silly rigmarole of purchasing and then paying off to prove to future
> agencies that I'm responsible

That actually sounds like a fantastic method for a lending agency to determine
who is responsible and who is not.

~~~
mark_edward
How is such a person more responsible than someone who never uses debt to make
similar purchases?

~~~
antisthenes
They may be equally responsible in actuality, but the company still needs to
see a verifiable source that the credits are being paid back.

It's a form of signaling.

------
yumaikas
This is something I fall squarely into. I've avoided debt like the plague,
preferring to live a few years behind the tech curve in electronics and using
older cars and such. I do use a debit card a decent amount however, for better
and worse. I'd much rather operate within my means, than spend my entire life
chasing something I can't actually afford.

edit:

I will be looking into getting a credit card decently soon so I can build
credit for things like a house, but at 22, I can say I'm glad I don't have to
worry about that hanging over my head in the future.

------
typetypetype
> Credit cards are frequently necessary for the bigger purchases - like
> washing machines and computers...

Saving up enough to buy items like without going into extremely high interest
credit card debt is responsible consumerism.

~~~
Bartweiss
And amusingly, the best credit cards for those purchases are almost always
obtained _during the purchase_.

An appliance purchase at Sears comes with 60 months of 0% interest if you open
a card - it's debt, but not necessarily irresponsible. Using a normal card to
debt-finance the same thing is far less responsible, and I'm not really sure
what the article was trying to claim there.

------
biztos
While I realize it may lead to less (reckless) spending, this is probably a
good thing. Certainly my generation overused credit cards, and many of us
learned painful lessons from it. I sure did, though even now I have a somewhat
cavalier attitude towards the plastic.

Sure, there are lots of benefits to credit cards if you have the discipline to
use them to your advantage. But most people don't have that discipline, and
the banks try very hard to loosen what discipline you do have.

As an American living in Europe I find the different attitudes to credit cards
over here very interesting.

For instance in Germany I had a Visa and now I have a MasterCard, at a big
fancy bank, and both are automatically paid in full from your account on the
first of every month. It might be possible to run up debt on a credit card in
Germany (or it might not) but it's not the default action like it is in the
US. No "click here to pay the minimum."

Also, lots of places won't even take credit cards in Germany. Like Ikea for
example. Instead these places will take your "EC card" which is like an ATM
card in the US, i.e. a direct debit from your account.

While the Germans are notoriously paranoid about debt -- hyperinflation will
do that to you -- some other countries are more freewheeling. In Hungary most
people don't have credit cards, but lots of places (including Ikea!) accept
them.

(Slightly complicating this whole story is the fact that in Europe most debit
cards are also Visa or MasterCard, which I assume is transparent at the point
of sale.)

However, back in debt-averse Germany, unsecured personal credit is much easier
to obtain, at much better rates, than in the US. So if you're gainfully
employed and you really need to buy that used speedboat to set the Spree on
fire, they've got you covered.

[edit: grammar]

~~~
skrause
The credit card acceptance in Germany is changing quickly right now, even the
discounter chains like Aldi and Lidl who were cash-only just 15 years ago have
been accepting contact-less VISA and MasterCard payments for around a year
now.

~~~
emp_zealoth
EU came down like a tonne of bricks on max fees that the banks/processors are
allowed to charge - those are no longer eating the profit off razor thin
margins those chains had

------
ourmandave
The article mentions several times that student loans are putting a lot of
people off more debt. Then it says they'll have no credit history when it
comes time to buy a house or car.

What about all the student loan payments they're making? That's certainly a
credit history, esp. if you miss a few.

~~~
manarth
In the UK, student loan payments (at least, those issued by and owed to the
Student Loans Company - an official government-owned body for student loans)
are not reported or recorded to any credit rating agencies.

UK student loans are effectively invisible.

------
loukrazy
Given the option for zero interest payments on things like appliances and
computers, why would you use a credit card for those?

~~~
cmurf
No kidding. Even new cars have 0% financing, but an even better deal is buying
a newish used car. But this whole article sounds like it was written by the
finance industry as if millennials are irrationally scared (i.e. spooked). I'm
increasingly not liking this article!

------
doctorpangloss
There's a lot of confusion around how these cards work and what these
statistics measure.

In this article they are talking about the sum of all balances on credit card
accounts. Technically all of this money is borrowed, even if, as some
commenters say, you "pay in full every month." You're just only getting
charged interest after typically 30 days. Using terms like "revolving debt" to
describe interest charges is imprecise, as is describing payments on interest-
bearing debt as "paying late." Interest is interest, and debt is debt.

How do credit scores distinguish debt from interest from defaults, the
inability to pay interest (sometimes principal)? It doesn't matter. Before
Lending Club hid them, the variables that were strongest correlated with
borrower race and borrow age were most correlated with default on loans. But
debtors who accrue interest via credit cards and pay it are the most
desirable, because obviously they are the debtors who make money for the
creditor. The fastest way to get the best credit card offers is not to pay off
your balance in full before interest is accrued; instead, accrue some interest
and pay it off. Then you become Mr. Credit Card Offer, Eater of Spam Mail.

I think a lot of aversion to credit cards (and borrowing generally) is just
financial illiteracy. Universally people conflate debt and interest. They get
dinged by the horrible experience of forgetting to pay once, even if the total
interest paid was less than 0.1% of their expenses in a year. Put another way,
if you gave me access to low interest debt, of course I'd take it... And open
a bank!

The real scam is mortgages. Financial illiteracy makes people minimize monthly
payments instead of "finance charges," one of the most precise (broad and well
defined) but poorly understood terms on a mortgage. There are millions of
wealthy suburbanites paying 30 year mortgages with finance charges equal to
nearly half the value of the home—a 50% markup for the privilege of lower
monthly payments.

------
op00to
Just a few months ago, NY Times said folks are spending more and more on
Credit Cards: [http://www.nytimes.com/2016/03/27/your-money/credit-cards-
en...](http://www.nytimes.com/2016/03/27/your-money/credit-cards-encourages-
extra-spending-as-the-cash-habit-fades-away.html)

They highlight a 25-year old (arguably fitting the Millenial archetype) that
"uses her Southwest Airlines Rapid Rewards card to collect points she says she
uses for plane tickets to visit her family in California."

Which is it? Are we using credit cards more, or are we spooked by them and
using them less?

------
calvinbhai
Surprising that the article equates less credit card debt to less usage of
credit cards.

Its possible that people became more responsible and started paying off their
balances while also using their credit cards?

The article would make any sense if it also mentions the total credit limit
and the ratio of revolving debt to credit limits.

I for one, am glad that I'm comfortable with using credit cards, applying for
new ones, and pay off statement balance all the way. That way, I'm getting
good money back, while the spooked credit card avoiders are paying more for
the same stuff :)

------
mankash666
The credit for these individuals has shifted from cards to student loans.
Paying your student loan on or ahead of time does give you great credit
history, in time for your first mortgage

------
SeanBoocock
I can identify with this. As a 30 year old, I have never and don't ever see
myself owning or using a credit card. The experience of my parents struggling
with debt for most of my childhood remains emotionally powerful, even against
the opportunity cost of not using credit cards.

I am willing to to take extra precautions against fraud and lose the cashback
I otherwise would earn, if it means never inviting potential credit card debt.

~~~
op00to
I'm curious what the credit score would be of a fiscally-responsible 30 year
old with no credit cards. Care to share a ballpark, if you know?

~~~
SeanBoocock
The closest I have is the approximation supplied by my credit union (Alliant).
Currently it sits at ~660, having fallen from ~740 when I finished paying of
my student loans. At the moment I am counting on saving more than the standard
20% for a future home purchase, in order to minimize the impact of my lower
credit score on a worse mortgage interest rate.

~~~
op00to
thanks! That's interesting that you took such a hit from having your loans
paid off. I know that has an effect, but that totally dropped you out of prime
territory. When shopping for your mortgage, you may want to see smaller
mortgage brokers who would be able to give you a slightly better deal versus
going to a larger bank. Good luck!

------
angryasian
I know I'm the cynic but I find this more telling as how millennials are
incapable of self control. I love using credit cards vs physical money. I also
dislike the direct access to my bank account that a debit card provides. I
think credit cards place a very good level of security and consumer protection
if used responsibly.

------
pc86
> _Jason Towner, a 32-year-old who works at a private equity firm, cut up his
> last credit card, from Capital One, in 2010. He did not have any unruly
> debts, but he had just watched his father and sister close the family
> furniture store after a bank cut off their credit line in the middle of the
> financial crisis._

I can't understand this mindset. A bank refuses to extend a business line of
credit, so you... cut up a credit card? It's hard to imagine two things that
look related but have less to do with each other in actuality. I would expect
an PE professional to know that.

The idea that credit cards are bad is rooted in a fundamental misunderstanding
of what they are and how to use them to your advantage.

~~~
yumaikas
It's not that credit cards are inherently bad, but that they are
dangerous/risky if you personally struggle with impulse control.

The examples do seem to be decently unrelated, but we also don't know the full
story, so there could be a relating factor. Or the reporter could just be
using two stories of "credit" that tied together.

