Millennials Don’t Use Credit Cards Because They Have No Money | Hacker News Reader

Millennials Don’t Use Credit Cards Because They Have No Money

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51 pointsbonefishgrill81 comments

I realize I'm likely an outlier (as a millenial) in my age cohort but... the whole reason I have no credit card debt is because I'd prefer to not pay interest when I don't have to.

I certainly use my credit cards. In fact, I use them for everything I can, to maximize my rewards (which equates to ~$75 in cash back every month). The only things I can't use them for is rent and health insurance. Everything else gets churned through, and the balance is paid off at the end of every statement. It's quicker, has better fraud protection, and is easier to ensure I'm staying on budget. I just haven't paid a cent in interest in at least a decade.

I believe the term the credit card companies have for me is a "deadbeat".

> I believe the term the credit card companies have for me is a "deadbeat".

Nope, they're still collecting interchange fees [1] from everyone you do business with. They're probably taking the same amount as your rewards, if not more.

[1] https://en.m.wikipedia.org/wiki/Interchange_fee

It's worth pointing out that as cc payments have become ubiquitous, theses fees are built into the pricing we are all paying.

Essentially, the participation and dominance of credit card transactions in our (U.S., at least) economy maintains a some-percent elevation in consumer prices. That "toll" going in large part straight into payment processors' and banks' pockets.

If you do pay by another means, perhaps the seller gets a bit more on that particular transaction. But I've talked with many small business owners who greatly lament these transaction fees. Not insignificantly, because they've been unable to compete with the negotiating power of big business, the latter as a result getting lower fees and a resulting competitive advantage.

As for "deadbeat", I've heard that term before, used for precisely the circumstance described.

Are they "losing money"? I doubt it. But along with oligopoly comes an oversized dose of greed. And some portion of management looking to sell their own performance by upping the return/profit rate on extant accounts. Or something like that, no doubt.

> I believe the term the credit card companies have for me is a "deadbeat".

No, the credit cards are making plenty of money off of you: probably on the order of $150 a month. From there it costs $.35 to bulk mail your bill, and $.25 to process your payment (including the cost of running the web site you pay it at). There is also your share of the advertising they do, and other overhead that I don't know how to place. Still their profit off of you is over $100/month!

I'm not entirely convinced that the person who maxes out their cards and pays interest is actually more profitable - a lot of them will end up defaulting in a few years and paying less than they actually put on the cards in interest. I can't be bothered to look up the numbers (if they are even available) to see if that is true or not.

Of course I made up the numbers above. They are ballpark (and somewhat variable), but they give you a picture of the truth: your are insanely profitable to them.

Having worked in payment systems and processing, I'm well aware of the interchange fees and other fees.

However, the specific name for the cohort of users who paid a very small percentage of their spend (including 0%) was indeed "deadbeat" (at least in the two data warehouses I helped build out), as I'm less profitable than others with less spend.

In fact, one issuer (Capital One) actually closed a card I regularly used (~$1000/year annual spend) about 2 years ago, the letter not stating reasons why. I actually called customer service, and they cited that the costs to maintain my account was considered too high. I used them for a specific category of transactions in which the rewards were higher than any other card I had. Though my usage was apparently insufficient to make it worthwhile keeping me as a customer.

$1000/year is a very low amount to consider regular use, I would think.

As others have stated making money off of the merchants is part of their business model. At $1k/year I wouldn't be surprised if that puts you into negative territory.

I'm a Millenial and I'm the same way. My wife and I pay for everything on our credit cards, then pay them off each month before interest accrues. We get the reward points with none of the drawbacks. We've been doing it for about a decade now.

The idea of using a credit card to spend money that I don't already have sitting in the bank is appalling to me. If I need more money than I have, I borrow it from somewhere else. I would rather sit down at the bank and ask for a small loan from them than use a credit card with an obscene interest rate.

> We get the reward points with none of the drawbacks.

A small nitpick would be that there is a drawback: the cash value of the reward points is less than the additional cost of doing business for the merchants you pay via credit cards. Granted, if everyone else is using credit cards while you use cash, you get hit with that drawback without the benefit of recouping a portion of that value by way of points.

Unfortunately, in most cases, you are not given the option of the discount for not using a credit card - the cost is baked in and amortized over all transactions. Aside from a few gas stations that offer a cash discount and under-the-table transactions, I've seen so benefit to not using a credit card.

This is rather baked in agreements that the merchants signed with the credit card companies, where it is stipulated that they must not make goods cheaper for cash paying customers.

Most are worded such that a merchant can't "charge more for using a credit card", making cash discounts OK.

That's because the merchant won't give you a discount for handing over a wad of cash. They just pocket the extra that would have gone to the interchange fees if you had paid by credit. So you'd be stupid not to just play the game and use credit.

If a merchant gave me a solid 4% discount for handing over a wad of cash, I'd put away the credit card.

"They just pocket the extra" is another way of describing a business' profit margin. The point here is in order to pocket enough extra to stay in business, they need to increase prices in order make up for the additional cost of credit card transactions.

They don't and can't give you a solid 4% discount for cash payments (or a credit card surcharge) because it is generally against the terms of their merchant agreement and they would be at risk of losing their ability to process credit card transactions altogether.

My original comment was merely reflecting on the fact that the perceived upside of getting rewards is dampened by increased costs that are passed all the way back through to the consumer anyway.

While it is legal for merchants to charge more for CC transactions (giving the buyer incentive to not use cards), I think this is relatively new.

It wouldn't hurt, IMHO, to just ask a vendor if they can give you a discount for cash.

Some groceries near me (given the large Asian/Indian population) simply don't accept CCs. Some accept debit cards, and give you an incentive for cash.

Everyone else is using credit cards, whether I choose to or not. I'm paying that price increase either way. I might as well get some benefit. It seems idealistic in an "I'm voting 3rd party" sort of way to think that by being stubborn I will change the whole system. However, if a movement began to gain traction towards cash-only purchasing, I might join it. I'm not under illusions about my own influence on the world - I have none.

Same here.

I'm not a millennial but I do this as well. However, when I was millennial aged, I used debit cards almost exclusively and credit cards only rarely. Now I use credit cards exclusively, paying it off every month, and never use my debit card. The security, rewards, credit score, etc are far better with credit cards.

The credit card companies still get paid on transaction fees, which is where your rewards come from. They collect $150 from the merchant and pass $75 on to you. They are arguably making just as much money on you as someone with low transaction volume (say $250/mo) but with a $3k-$5k balance @ 20% APR which is $50 to $80 in interest a month.

Actually I don't think you're an outlier at all. This is exactly what me and my wife do. Everything from the mortgage to daily coffee goes on a card. I have a weekly calendar event to zero of the balance on each. We get all the cash back benefits and never pay any interest or membership fees.

Also an outlier - the whole reason I don't have credit card debt is because I'd rather "pay now" lest I "forget later". I know I'm really bad with remembering to pay monthly bills if they don't pay themselves so buying things on credit involves an extra step of "paying it off immediately" which AFAIK defeats the entire purpose and negligibly, if at all, builds credit. It's a debit card with additional hassle added to every single purchase. No thanks.

Deadbeats don't pay their bills; sound like you do.

Instead, you are a "transactor", vs. a "revolver", one who takes on the debt for more than the grace period.

The article is arguing that they don't get credit cards to begin with, not that they don't want to get into debt.

Credit cards are valuable tools since they:

1. Offer all sorts of insurance/protection. 2. Lump multiple small transactions into one monthly debit from your checking account. 3. Offer a 30 to 55 day interest free float.

The issue is that some people have no self control. Once you start missing full balance payments all benefits are pretty much negated.

Honestly, that's all this argument ever boils down to.

"I don't use CCs because I have no self-control"

It's also easily solvable by getting a credit card with a low transaction limit (say, $1000), but people who have no self-control generally aren't interested in solutions.

I do roughly the same thing.

My regular bank changed the fee structure on me, somehow I missed the notice about it, and I got dinged with some account fees. So I switched ALL of my day-to-day spending to a credit card with a competing bank.

So instead of 40-ish Interac transactions per month for my day-to-day stuff, they get one bill payment transaction.

My interest payments are zero, since the bill gets paid off, plus I get the cashback bonus right around Christmas time.

Ditto. My credit cards are set up to auto-pay in full every month (because apparently I'm too dumb to understand Chase's billing dates, I actually got a late fee one time when I was trying to pay everything off 100% manually every month).

It's ridiculous, but I get more utility out of the credit cards, even with the fees, than debit cards.

I am exactly the same way. I buy everything using my credit card and pay off every cent from the last month on the 18th of each month. No extra interest, but I gain rewards and it has let me build good credit as a young person with no other means to do so. I've never carried a single penny over from one month to the next.

Using a fixed day sounds like a good way to have discipline. Usually the due date is some number of days (like 21) past the billing period date. The billing period end date is always some fixed day of the month, but the actual due date fluctuates due to the different lengths of months. If you pay a bit early and make it a fixed date, that could be a useful tool to stay in line. You can then program it into your smartphone calendar as a recurring item, too. Of course, in online banking you can also set up things to have the bill paid automatically; but there are downsides to these "set up and forget" schemes.

For your health insurance, if you're otherwise healthy, look into an HSA. You'll have a high deductible ($3k-ish) but it's linked to a savings account that can grow over time. Mine is currently paying 1.5%, which beats the pants off any other savings account I have.

How do you get so much cashback? I've always poo-pooed credit card benefits because back of the envelope calculations always make them seem negligible (ie 1% cash back)

One way is to look for introductory deals. A lot of cards give bonus reward points for opening an account, then more if you charge a certain amount in the first 30 or 90 days, etc. Some also give double or triple points for spending in certain categories e.g. restaurants or travel.

Straight cash back bonuses are maybe not as easy to find.

If you know what you're doing, it's easy to get 5-10c per point.

There are entire websites and communities dedicated to the points game.

Same here. There are a lot of advantages if you use a credit card to pay for most things, as long as you pay the balance in full every month.

I'm also a millenial, and I do a similar thing. Maybe that's why they don't think we're "using"?

Millennial here.

Opened my first credit card, a Discover student card, at 18 whilst in college. My credit limit was something awful, $1000 if I recall correctly. But the credit impact was immense.

By charging a hundred bucks or two, and never carrying a balance, I already had a 4 year long positive credit history upon graduation. Fast forward a few years, and I was able to take out a mortgage at 25. The Credit Union that granted it explicitly stated that said length of responsible credit card membership was the deciding factor.

It doesn't take much to build a credit history while you're young, and even $50 or $100 per month in your student years is enough to get a serious leg up.

Yep, same. I got a Discover card when I went off to my first internship at 19. I kept that card, and only that card, until I was about 27, when I finally added a Visa for Southwest points.

Paying off every single bill on-time and in full (except for one month when I'd just moved cross-country and hadn't got my first paycheck yet) meant that I received nothing but benefits from the credit card, and ended up with a credit score over 800 when I finally decided to buy a house this year.

As a student, the Discover card was great because there were no yearly fees (what student wants to spend $100/year on that?) and it gave 1% cash-back, which was a nice little bonus a couple times a year that I could apply directly to the current bill.

I know quite a few people who refuse to get a credit card, because they apparently think they'll just be unable to control themselves and rack up $10,000 in debt the first month. I guess the voices in their heads tell them to spend. They tend to be a little surprised when they try to get a home loan and realize that, sans credit history, they have no chance.

Conversely, people like me who were stupid at 18 and let a $400 credit card go into collections are completely screwed for a decade. I can't even get a cell phone contract, much less a mortgage. I believe strongly that the legal age of majority should be raised to 21.

> the legal age of majority should be raised to 21

I think we just do an absolute piss-poor job of training people to be competent adults. Delaying adulthood even further is not the answer - not when people have historically led nations and raised children at ages that we would now consider the same acts a felony.

>not when people have historically led nations and raised children at ages that we would now consider the same acts a felony

My argument has more to do with the physical development of our brains than any social reasoning. A major reason for the 21 drinking age is that your prefrontal cortex is simply not fully developed until well into your 20s, leaving people to make terrible decisions without the ability to fully comprehend them.

The age 18 majority made sense in a world where people needed to get married and raise families and enter the workforce as soon as possible, but we no longer live in that world (in the US at least). The better option is to extend "childhood" a few more years, along with compulsory post secondary education which includes proper training to be an adult.

Interestingly, you can get the benefits to your credit rating without actually using the card at all (beyond the couple transactions per year required to keep the account active). In fact, this is an optimal strategy: One of the factors in your credit rating is how much of your available credit you use. Bizarrely, even if you pay your balance in full every month, a large balance:limit ratio still counts against you. So spending no money is better than having enough income to spend lots of money without holding debt long term. If you want to put all your spending through the card for the side-effects without being penalized for using too much money responsibly, you have to pay down your balance before the billing date.

Basically: credit ratings are crazy bullshit.

similar story, but when I was older.

I got my first credit card when I was ~24. Coming from a 0 credit score (literally, no records), I had to do a $1,000 limit card, backed by a $1000 savings account I couldn't touch, with a $50/yr annual fee. Even my own bank, who knew my income and cash on hand (historically), wouldn't approve me for anything aside from this card. Around the same time, I had to get a cosigner on a used car loan, because even putting 50% down in cash, South East Toyota Finance wouldn't do better than 14% interest, lol.

It really didn't take long to build a credit score up though. 3 years later and Im well in to the "excellent" range, and had no issues getting a home loan a year ago.

What if you fucked up at some point, accrued some debt, eventually paid it all off, and then do what you did? Is the recovery period for credit short or are you screwed for quite some time?

Millennial here. This is mostly correct though you are very wrong about a few things.

> the average American under 35 had 182 percent less student debt

What does that mean? If you have a 100% less of something than someone else, you don't have any of it, right? Did colleges owe the average student money in 1995?

Probably the rookie error where someone sees X = 3Y and says, "X is 200% more than Y, therefore Y is 200% less than X".

(It's an accurate enough approximation at small levels, like when X is 1% more than Y, but becomes misleading around 10% and downright funny over 100%.)

Hah. This is why I hate all comparisons in percentages. You can't have 110% of something.

Or the old "give it 110%"... no I can only give 100%. Nothing more.

The error you're pointing out does not exist in general. % just means "per hundred". If I say A is 110% of B, I'm just saying there are 110 A for every 100 B, which is perfectly reasonable in many contexts. Of course it doesn't make sense to say "Give 110 for every 100 you have available", but that's just one particular context. On the other hand, "Give 110 for every 100 you think you have available" makes perfect sense, if you interpret it to imply that people generally underestimate their ability / hold back.

...that's better than previous generations who didn't have the money but overextended themselves anyway.

On the other hand... This could mean they would overextend themselves financially if they had the confidence in the economy to take the risk and they simply don't have confidence in the future economic climate.

Does "hold credit card debt" include people who pay their credit card off each month? If not, it seems like the premise of the article is wrong.

A simple rule for credit cards - pay full dues every month. And get all the benefits of a credit card.

Since millennials are already in debt (as the article suggests) and not having a regular income yet, credit cards will make it easier for them to buy beyond means - So it is better they delay owning credit cards. Whats wrong in that!

> Data from the Federal Reserve indicates that the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989.

I read the original NYT article and had the same questions as many people here.

1. Isn't having less debt a good thing overall? (I'm not talking about things like business loans and so on)

2. Does lower credit card debt in the 20-35 cohort imply lower usage of credit cards or is just due to them running a balance less often? Is it still counted as "debt" if the balance is paid off every month?

3. Has anyone surveyed credit card companies about increase or decrease in number of credit card application approvals from the 20-35 cohort? Could that be a better proxy of credit card usage?

4. Is it at all possible that millenials use credit cards more sensibly than other generations? Maybe they only spend as much as they can pay off every month. After all, this is the generation that grew up in two wars and a depression.

It's indicative of the paradoxical nature of the times, that taking on loads of debt is kind of a dumb personal decision, but the health of the economy depends on people doing it.

https://en.wikipedia.org/wiki/Immiseration_thesis

I'm probably an odd one out, but I love using credit cards. Got my first student card as a freshmen in college, and at this point I have about 10 cards, each with a very high limit (most of them with nothing on them).

I treat them like shock absorbers/cheap debt. For example - we're saving up for a down payment, while there's large bulk expenses that pop up like tuition for Masters programs. I throw those on the credit cards, and take advantage of balance transfer offers to essentially get a low-interest loan for a year.

Are there 2-3% balance transfer cards?

Initial fee of 2-3% of the balance to transfer, then 0% APR for a 1 to 1.5 years normally.

Anecdotally speaking, I'd have to disagree with the authors conclusion here. Most of my college-aged friends (many of which are from the University of Delaware, the same school the author goes to) rely solely on their credit cards; the only ones I can think of who don't are those who get paid mostly in cash (waiters/waitresses, bartenders, under-the-table short term jobs, etc). Hell, most of my friends think I'm weird for using cash as much as possible; few even carry cash these days.

Personally, I'd say that, while plenty of college-age millennials still rack of credit card debt, a lot of us also had the idea of "Always pay off the entire monthly amount on your card" beaten into us by our parents and by seeing the effects of the recession. We might not be "financially literate" yet (god knows I'm still learning) but we at least know that.

Wish I could take my page view(s) back.

A poorly written article that summarizes another mediocre article which could be summed up very easily: Millennials aren't using credit card debt as much as previous generations because they're more familiar with the effect of debt than any other generation before them.

Millennial checking in: I don't have a credit card, just got rid of overdraft on my regular bank account and have a line of credit. Once I pay off the LOC I'm never using credit again unless it's an invest that will pay itself off, ie. a (successful) business, real-estate, etc.

I'm of a similar mind. I sort of resented the tone (that might have been perceived) in the article that not using a credit card is some kind of marker of a financial dummy or irrational paranoid.

I pay cash for everything. I have a stable checking account, savings account, and several investment accounts that has my money working for me and growing. I'm completely aware of what the credit cards offer and I don't think it's valuable to me or my goals.

The only credit I want in my future is potentially a home and if I can make that happen in cash, I will, or at the very least a down payment that keeps the credit line realistic to pay off before I'm senile.

Just to say it, it's not that millenials are just walking around with rolls of cash. Many use debit cards or other payment mechanisms (venmo, etc.). It's more the credit (unsecured lending with expected interest rate) aspect of the credit cards that they tend to shy from.

Its probably because they can use alternatives like Debit Cards and PayPal.

Also I am not sure if lower credit card debt means people don't have credit cards, or if they are just using them for transactions rather than accumulating debt.

A lot of weird self-hating stuff specific to college students. Plenty of Millennials are late 20s with steady jobs, the author doesn't really address that at all.

We on HN are lucky to live in a world where at 24 we are fighting 6 figure jobs offers but the rest of my millennial friends do not have that experience.

The median income for a 29yr old is $35k[0], which is barely enough to buy a house in B or C cities.

My grandfather came from mexico, worked at a factory and was able to raise 3 kids, buy a house, rental property, and lincolns for my grandma. Can anyone say the same thing about a lower middle class worker now?

[0]http://www.theatlantic.com/business/archive/2016/04/the-aver...

I don't understand why the author titled this piece "...because they have no money", when the article doesn't actually give that as a reason (instead it's 'lack of awareness [of benefits]', 'not being financially literate', and 'being more self-aware').

> Even more notably, the benefits of improving your credit score early are immense.

[citation needed]

EDIT: I also particularly like the part where "financial literacy" is used as a surrogate for "people who want to overleverage themselves to make the bankers money".

> [citation needed]

http://www.experian.com/blogs/ask-experian/infographic-what-...

At least according to them, 15% of your credit score is based on the length of your credit history. And your credit score can impact lots of things.

I'd disagree with the word "immense," but it does seem somewhat useful to have a score >800 or thereabouts, and having a credit history longer than a few years is needed to have a score like that.

Good credit helps you: rent an apartment, buy a car, lower your insurance rates, and buy a condo/house.

Additionally, buying things with a credit card gives additional benefits such as extended warranties and protection against fraud.

At least two of those aren't "buy"...they are "leverage self further".

I know this sounds a bit nutty, but many of the arguments for credit seem to go:

  "Why do I want to take on debt?"
  "To build your credit score!"
  "And what does that do for me?"
  "It gives you the opportunity to take on larger debts!"
  "And why would I want to do that?"
  "...why do you hate America?"

Not even joking.

I think that the credit is built by taking on debt and then paying it down. It shows that you can produce money reliably when required to do so, and that given some rope, you won't hang yourself with it.

Extrapolate that a bit and you're paying a mortgage using the same skills.

I think you're onto something though - look at this article with a skeptical eye and doesn't it begin to seem an awful lot like http://paulgraham.com/submarine.html ? It's that same old shitty mix of advertising and content, with the people purchasing PR services in this case being someone in the retail credit sector. Plausible enough to wonder about it, anyway. The suit is back and Millenials just aren't big enough awesome yay special winners to use our wonderful debt product. Yeah bullshit. Stick to your guns, Millenials, and never (or at least rarely) borrow to spend.

Depends on the country but in the US credit rating is king. I knownpeople who moved to US who are taking a loan for a car and immediately pay it off just to build a score.

That's kind of a poor strategy. Open accounts, utilization, and average age of credit are the largest factors. Paying off a loan immediately may actually lower your score.

According to CreditKarma, getting "excellent" on the number of open accounts factor means having 21 or more open accounts. Assuming you have 4 cc, 2 student loans, 1 car loan and 1 mortgage you would still be in the "poor" category. I don't think I'll ever get out of the "very poor" category (0-5).

That's... insane to me. Right now I have 2 open accounts. 1 CC (that I pay off every month so no interest) and my Mortgage. I don't even have a car payment right now. Yet my credit rating is top like... 4%? Mind I've had that credit card for almost 2 decades at this point.

Shop around for credit cards more often. You can find deals where they will pay you $400 just for using their card for 3 months. A pair of southwest cards timed to get a companion pass can be worth close to $4000 if you do it right.

Benefits of improving credit score: access to capital when shit hits the fan e.g. medical emergency?

Is this disputable?

There's a difference between not using a credit cards and not carrying credit card debt. Its called paying your balance off every month. A bit of clickbait there in the title.

I use my credit cards for everything but I pay them off in full and have never paid interest on them.

I only use debit cards, because I can get withdraw money on any ATM with it without additional costs.

"Debit card" is just a fancy word for "bank client card".

No "ding" for withdrawals on any ATM on any ATM network, really? And no monthly service charge for the account? No limit on how many withdrawals or debit payments per month?

It's a visa card, but without credit.

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