As millennials' purchasing power grows, their money habits affect just about every market segment: car leasing, online shopping and even the U.S. workforce.
This generation recently earned the attention of Bloomberg, which found millennials are growing more debt-conscious and may even stand to disrupt the credit card industry.
According to a survey that Bloomberg cites, just 1 in 3 millennials confessed to even carrying a credit card—with many millennials eschewing cards for cash.
Although the millennials in this survey might not admit just how many credit cards they have—statistics suggest millennials still hold an average of two per individual—having a credit card doesn't necessarily mean you'll get into debt. Handled correctly, credit cards can be a vital tool for building wealth, protecting your purchases and learning to handle money responsibly.
Here are a few reasons millennials might want to rethink their views on credit cards.
Reasons to Keep at Least 1 Credit Card
Research has shown that millennials don't always understand how credit cards work. A survey found that 6 percent of respondents thought missing a credit card payment would improve their credit scores. In reality, a timely payment history is one of the most important parts of your credit score. Misunderstandings like this are why it's important to learn how credit cards can benefit you.
- Using a credit card helps you build credit. Establishing a credit history can help you pass a landlord's credit check when you go to rent an apartment , or even help you secure a low-interest mortgage loan. You may save thousands of dollars by qualifying for a lower rental deposit or a lower mortgage interest rate. Unless you have active credit accounts with positive information, your financial background check might not go as smoothly.
- Credit cards offer an additional layer of protection. When you make a large purchase using cash, your relationship is only between you and that store. But when you make that purchase with a credit card, the relationship involves a third party: the credit card company. This creates an additional layer of consumer protection. Check individual credit card offers to see if they offer purchase protection or other benefits such as travel insurance.
- Credit cards pay you for using them. Although debit enthusiasts might warn that credit card points are nothing more than incentives to take on more debt, using rewards properly can get you cash and airline miles simply by making purchases you would have otherwise made with a debit card. Just don't take out more credit than you need, and use your regular monthly purchases to build up rewards.
These benefits are not small and can have a lasting impact on even the average millennial's life.
How Credit Cards Appeal and Even Cater to Younger Generations
Using a credit card properly can make life easier. They provide an easy way to track expenses, and most cards come with mobile apps that help you plan your finances and monitor your credit score.
Millennials also prefer to make easy payments online when possible. A survey of millennials found that nearly half preferred using a mobile device to using cash—especially when smaller purchases were involved.
One common complaint about credit cards is that they make it easier to throw money around: If you never see the cash you lose, you'll worry less about spending it. But today's credit cards aren't about spending recklessly. Card programs are making it easier for people to earn rewards for things they're already doing—like catching Uber rides and using their cellphones to make payments.
Getting a credit card can be a positive step in your financial life—when properly handled. Millennials who use their credit cards, make regular on-time payments and keep their balances low will find that these cards provide more rewards than drawbacks. This in turn helps them build credit, automate their budgets and build a healthier financial lifestyle.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
© 2021 Newsmax Finance. All rights reserved.