Younger Americans are dropping credit cards in droves in favor of debit cards or prepaid cards, CNN Money reports.
Credit score provider FICO estimated the number of Americans aged 18 to 29 not using credit cards has doubled since the recession, CNN says. About 16 percent of all young consumers had no credit card at all by the end of 2012.
FICO said younger Americans are opting for debit cards in part because they saw how their parents struggled with finances during the financial downturn that began in 2008.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
John Ulzheimer, president of consumer education at SmartCredit.com, told CNN prepaid cards are also a growing option. "There has been very aggressive marketing of prepaid debit cards over the past few years targeting young people and minorities. So it's not a surprise that more young people are using prepaid debit cards over credit cards."
FICO said the CARD Act, which took effect in 2010, has also made it harder for young people to qualify for credit cards.
Average credit card debt has dropped from $3,073 to $2,087 per person in the 18-to-29 age
group since the recession, CNN reported.
A broad-based decline in most kinds of debt among young people, including mortgages, has led to them achieving higher credit scores. The number of them with FICO scores of 760 or higher have grown from 8.6 percent in 2005 to 11.2 percent last year.
However, the older population is not faring as well in the credit score department. Consumers aged 40 and over have more debt today than they did in 2005, and their FICO scores have fallen, CNN said.
"Parents are having to take on more debt to help their kinds make ends meet," said Ulzhimer. "And, thanks again to the CARD Act, more parents are being asked to co-sign for their younger non-working children who want a credit card."
Reuters, meanwhile, reported that a weak uptick in recent U.S. credit card usage suggested
households are still trying to cut their debt load, which could hold back consumer spending. The Federal Reserve said total consumer installment credit rose by $11.1 billion to $2.8 trillion in April, less than the $12 billion increase forecast by economists in a Reuters survey.
U.S. credit growth is being driven by student loans, Reuters concluded – part of the same age group that is now using credit cards less.
Bloomberg Businessweek reported that economists predict American consumers in general will continue to resist credit card use in 2013, partly because higher Social Security taxes have reduced most paychecks.
Editor’s Note: Put the World’s Top Financial Minds to Work for You
© 2021 Newsmax Finance. All rights reserved.