Almost Half of Millennials Don't Use Credit

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According to the Pew Research Center, the Millennial generation has overtaken the Baby Boomers as America's largest generation. There are over 75 million Americans born between 1971 and 1997, which is now fewer than those born between 1946 and 1964. And as the attitudes and beliefs of each generation are shaped by its experiences, many observers have noted that the behavior of millennials reflects the conditions of the financial crisis and the subsequent Great Recession that began in 2008.

How Millennials Worry About Debt

In a recent survey by TD Bank, almost half (44%) of Millennials reported not using credit at all, and the authors speculate that it may be because they've lived through the financial crisis and battled student loan debt. By avoiding credit, members of the Millennial generation are becoming increasingly dependent on using cash. When asked what is the biggest benefit of using cash, most Millennials said that using cash enables them spend within their means, while one-fifth of those surveyed say they worry using a credit card will make them incur debt.

The Downsides of Avoiding Credit

While avoiding credit is a foolproof way to stay out of debt, it does have some serious drawbacks. For example, credit cards offer more security than cash, checks and even debit cards. Cash can be easily stolen, while stolen checks can be forged. Even debit card purchases are not subject to the more robust laws that protect credit card users against theft, fraud and even merchants that fail to deliver.

Furthermore, many credit cards offer valuable benefits to cardholders such as purchase protection and travel insurance. For instance, most credit cards offer car rental insurance that takes the place of the expensive policies offered by car rental companies, and shoppers can enjoy benefits such as extended warranty coverage, price protection, and damage and theft protection.

Finally, credit cards can offer valuable rewards in the form of points, miles, and cash back. In fact, less than one-fifth (19 percent) of the Millennials surveyed said the biggest benefit of using credit is it allows them to earn rewards, implying that perhaps the other 81 percent did not realize how valuable earning cash back or travel rewards could be. In addition, only 17 percent of respondents reported making big ticket purchases with a credit card, missing out on the opportunity to earn even more cash back rewards when making large purchases.

Millennials Are Failing to Build Credit

Perhaps the biggest drawback that Millennials face by avoiding credit is that they aren't establishing the credit that they might need in the future. Only 28 percent of Millennials surveyed said that building credit is important so they appear trustworthy to mortgage lenders, meaning almost three-quarters aren't considering the importance of establishing credit now. In addition, even fewer (just 18 percent) said that building credit is important so they can make large purchases in the future. And as Millennials increasingly look to apply for mortgages and car loans, they may realize that avoiding credit and credit cards altogether might not have been the best strategy.

By understanding how modern events have shaped the current generation, we can take a step back an reevaluate our attitude towards credit.

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