When it comes to credit, the way each generation uses it varies as much as the generations themselves. It’s not surprising that the generation in which you came up impacts your spending habits, and how you use and view credit.
According to 2015 data compiled by Experian, there are notable differences among Baby Boomers, Gen Xers, and Millennials when it comes to card usage, card balances, and even credit scores.
Baby Boomers, generally defined as those born between 1943 and 1960, use the least amount of their available credit — just 25 percent. Boomers carry an average credit card debt of $5,603.
Gen Xers, generally defined as those born anywhere from the early 1960s to the early 1980s, carry the most credit card debt, with an average balance of $6,752. Gen Xers use 41 percent of their available credit, according to Experian.
Millennials, defined as those born after 1980, carry the lowest card balance of any generation, with an average of $3,403. Because this generation has less credit available to them, that still represents 43 percent of their available credit.
But millennials are using credit much differently than the generations that came before them. For example, they hold fewer mortgage and car loans than their older counterparts. They also hold fewer credit cards than previous generations. Their student loan, debt, however, is much higher, according to 2016 data from the Federal Reserve. In fact, when compared with American graduates in 1995, Americans under 35 have 182 percent more college loans to pay off.
Why the differences?
Boomers higher credit card usage and view of credit can largely be attributed to the job market and economy during the bulk of their working years. Most of this generation’s spending habits and view of credit was shaped during a time when the economy and job market were strong. In their younger years they were using credit to afford the luxuries they couldn’t pay for in cash and now they are using the cards to find things they want to do in their retirement years.
This generation also tended to stay in jobs longer than subsequent generations — particularly the millennial generation, for whom the average length of employment at one job is three years or less, according to results of a survey published by Forbes. While millennials may be advancing faster in terms of earnings and salaries, shorter durations of employment come at the expense of pensions and growing retirement plans — both things that can be used to pay off debt in the long run.
Gen Xers, meanwhile, were among the hardest hit by the recession that began in 2008. Many have watched their homes and retirement accounts lose significant value in the post-recession years from which they’re only beginning to recover. Therefore, whereas Boomers are using credit to afford more luxury items, Gen Xers are often using it for everyday purchases.
Millennials represent a mindset shift when it comes to credit cards usage in particular. That’s because they came of age during the recession and likely watched their parents struggle financially. In general, they take a more cautious approach when it comes to credit and debt.
“It’s pretty clear that young people are not interested in becoming indebted in the way that their parents are or were,” David Robertson, publisher of payment industry newsletter The Nilson Report, told The New York Times.
To that end, not only does this generation use credit less — with just 67 percent using cards, according to 2016 data from FICO — they also tend to pay it off sooner. In fact, many millennials use credit cards like debit cards in order to reap travel, fuel and cash back rewards from cards. And according to a recent Facebook poll, millennials put more emphasis on savings than the generations that came before them.
Interestingly, millennials also define financial success much differently than Baby Boomers and Gen X. Whereas those generations’ definitions would include income as a determining factor in success, millennials’ define it as being debt free.
In their seemingly more sensible approach to credit, millennials have the lowest credit scores among the three groups. Millennials have an average VantageScore of 625, compared to Gen Xers, who average 650. Baby boomers come in highest, with an average score of 709.
This lower score has as much to do with the fact that millennials have less credit because of their conscious avoidance of using it as it does being more maxed out on things like student loans. It’s important for this generation to remember that having little or no credit can also negatively impact credit scores.
Gen X and Baby Boomers have shown more creditworthiness, not only because they hold more credit cards, but also because of the amount of debt they’ve run up and paid off over the years. These generations understand the importance of timely payment history and they’re conscious of punctual payments. These generations also keep closer tabs on their credit report when it comes to checking it regularly.
When it comes to credit, there is one factor that bridges these generational gaps: access to to an abundance of information and resources on how credit usage impacts your score and ability to borrow.
By leveraging resources such as access to your free annual credit report and working with professionals that can help you repair your credit issues of the past, you can ensure that the way you’re using credit is working to your benefit.
If you are interested in credit repair services, contact Lexington Law. We help you understand your rights to make sure you have a fair and accurate credit report.