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Not only are they in trouble with their student loans, they are also having a lot of problems with their credit card debt. While it is not as great as their elders, the combination of their debts from their college education and credit cards add up to be a formidable financial problem.
To add to this debt situation, this generation seems to lack in terms of financial literacy. A study done by FINRA.org revealed that Millennials, compared to other generations, are also displaying low levels of financial literacy. The study conducted by FINRA Investor Education Foundation also revealed that this generation engage in financial behaviors that are sure to lead them to problems later on. The study involved answering a series of questions and in the age bracket of 18 to 26, a mere 18% was able to answer 4 to 5 questions correctly (from a questionnaire of 5).
According to the observations from the study, Millennials stepped into adulthood amidst a bad economic condition. Student loans are high, jobs are scarce and businesses and households are all suffering from the Great Recession.
Currently, states are working on the financial literacy problem through the inclusion of economics and personal finance in the K-12 curriculum. But we have to think about how to address the bad financial behavior of this generation. It seems that one of the behaviors that we need to be looking into is the use of credit cards.
Study shows Millennials like to use cards for minimal purchases
According to a study done by CreditCards.com, Millennials have this knack of using credit cards for small purchases. Things like coffee, newspaper, and even chewing gum - Millennials love to use their card. Some of them use debit cards but a lot of them use credit as their mode of payment. This seemingly casual way of making purchases on credit is scary because it is easy to forget just how destructive it can be. It will also make us too reliant on these cards when making any kind of purchase.
The survey was done on 983 adults - all of which are credit card holders. The results gave us the following insights:
- 1/3 of respondents use their cards to make purchases that are less than $5.
- Of the respondents that are aged 18-29 years old, majority of them prefer using plastic to cash. The percentage goes down as those who are older are more inclined to use cash over credit cards. In fact, of those who are retired (65 and above), 82% of them prefer to use cash.
- Those who graduated or attended college are revealed to be more comfortable in using cards. 18% of those who got a college degree use their credit cards for small purchases compared to 6% of those who did not attend college. It can be assumed that those with college degrees are more confident about their ability to pay back their charges.
- The higher the income bracket, the higher percentage of cardholders will use plastic when making small purchases. When the consumer is employed full time, it also affects how they use their cards - which is more likely than those who have a part time job or are unemployed.
In truth, most of the people who expressed preference for using credit cards are those who have the ability to pay it back. Things like a college degree, higher income and employment stability affect the frequency of credit card use.
It had long been a debate as to paying in cash or credit is the smarter way to spend you money. In truth, both of them have their own pros and cons. But when Millennials are asked why they prefer to use credit cards, they gave a lot of answers.
- Buying with cards is just as easy as buying with cash - thanks to the advancements in technology.
- Credit card purchases can be done in almost all merchant stores.
- Rewards are more prominent and attractive. It motivates consumers to make purchases through credit cards.
- Trips to the bank to withdraw cash is no longer necessary.
- Making small expenses makes the debt more manageable.
- Allows Millennials to build up their credit history.
When is it okay to use your credit card account
While the convenience of using credit cards may be there, it is very important that Millennials be very careful about not over charging. It can actually go both ways. The small purchases can allow consumers to pay off their debts immediately. But at the same time, it can also keep them relaxed about payments - since it is small anyway.
It really depends on what you know about proper credit management. If you need a reason to use credit cards, here are 4 good reasons to use them even for small purchases.When you need to boost your credit score
The thing about Millennials is they still have a short credit history. This makes it difficult for them to make the right investments that involve personal or secured loans. According to an article from NerdWallet Millennials are struggling to build credit because before you can get a loan, you need to good credit score. But how can you get a good score if no one will trust you with a loan? Well this is where credit cards can be helpful. You can get a secured card, use it for small purchases, pay it off immediately and it should be enough to help put data into your thin credit history.When you can pay it off immediately
It is also alright to use your credit card even for small purchases if you have the discipline to pay it all off immediately. Some people use their cards even though they have the cash in their bank accounts. They take note of the amount they spent on their cards and makes sure that the cash equivalent is secure in their bank accounts. That way, when the bill comes in, they have the funds to pay everything back at once. If this is done before the grace period expires, then the interest rate or finance charges will not be included in the payment.When the rewards are worth it
Lastly, if you think that the rewards are worth it, then go ahead and keep on using the card. There are certain rewards card that can save you more money - as long as you understand how to use and maximize it. For instance, if the rewards are something that you need around the house, then this is beneficial to you. As long as your purchases to get that rewards are also necessary, then using your credit cards to get the reward should be sensible.
There is nothing wrong about using your credit card for any kind of purchase. If you decide to use it for small or expensive purchases alone, that is all up to you. However, it is vital for you to understand that credit management is the key to keep yourself from incurring problems with your credit card debt. As long as you are responsible, then using your credit cards should not bring any danger into your finances.