Parents often tell their children, “Don’t make the same mistakes I did.” When it comes to credit cards, at least, the kids seem to be listening.
A recent poll of millennials reveals more than half (52.4 percent) pay off their balances in full each month. Overall, only 35 percent of Americans can manage that. And while 36 percent of millennials have maxed out their credit card before – a costly and disturbing trend – it’s twice as prevalent elsewhere. Overall, 61 percent of all Americans have done that.
Taken together, the data from this little-publicized poll by an online student loan company called LendEDU is reassuring us about the next generation and shows millennials are getting smart with their cards.
In terms of getting cards, millennials think about getting them for the right reasons. More than two-thirds (69 percent) say a first card is mainly to build credit rather than for getting rewards or other incentives.
On top of that:
- 83 percent know their credit card limit
- 77 percent know that late payments hurt their credit score
- 71 percent have never missed a credit card payment
Millennials have also been better at paying off their whole balance compared to other generations. In 2016, 53 percent of those over 30 paid in full compared to 40 percent of those who are younger. (While it might be because they have lower balances, they also have lower incomes, so it’s still impressive.) This year, 52 percent of millennials said they paid off their balance in full month-to-month.
Getting their priorities straight
Millennials don’t use credit cards right by accident. It’s their mindset about the card.
According to a study by Facebook Insights, 46 percent of millennials say the main reason they use credit cards is to help them build credit, and 36 percent say they use credit to increase their financial flexibility. That, combined with the fact that 57 percent prefer paying with cash, is a shift from their older counterparts.
That change includes having fewer cards. Recent data from Bankrate shows that only 6 percent of millennials own two or more credit cards, compared to 13 and 18 percent for the next two closest generations.
“One credit card is great, two is fine, three is acceptable, and anything more than four is arguably too many for a young adult,” the LendEDU study says.
Instead of becoming a financial problem, more millennials are using the cards to their advantage. That helps set a better example for their future kids than their parents have done for them.
Learning from their parents
Parents usually try to set a good example for their kids. But overall, they have not done a good job of passing on information about finance to their children.
A lot of that involves the fact that parents lack knowledge about the topic themselves. Nearly 52 percent of parents think that using debit cards improves your credit score, according to U.S. Bank. It doesn’t.
While there is the potential to pass on bad habits, parents need to make sure they can talk to their kids about money. Instead of pretending to know, take the time to learn. Find fun ways to teach your kids about finance and read up on how to do better with credit yourself.