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Credit cards are a hot topic - some people love them, others hate them. Millennials, in general, have been known to care less about them, and instead seem to favor cash, debit cards, or prepaid cards. But why?
As someone who sees the value in having credit cards, it's hard for me to fully understand how anyone could be so nonchalant about them, but I know that each person is different and has their own opinions and reasoning. Still, I can't help but wonder how this happened, so I did some digging, and here's what I came up with.
The Great Depression vs. The Great Recession
The Great Depression made the Great Recession seem like a bad hair day. There's no doubt that things were bad in 2008, but back in the 1930's, things were worse. A lot worse.
My grandparents grew up during the Great Depression and had a scarcity mentality for the rest of their lives. In short, they were totally freaked out about money for their entire adult lives and more than likely raised their children to feel the same way.
Everyone who made it through the Great Recession is also probably freaked out about losing all of their money and learned that debt can have serious consequences.
In the years following 2008, too many Americans lost their homes and jobs and watched their credit scores plummet. As a result, many adults growing up at the time pretty much gave up and decided to avoid credit cards altogether. The thinking was that without credit cards, there would be no credit card debt and no ruined credit history to worry about.
This thinking, however, is flawed, because by opting out of credit cards, they will never have the chance to build credit, learn about credit cards, or establish a credit history.
How This Affects Millennials Today
These parts of history have seriously affected the millennial generation of today. Most are avoiding credit cards altogether and pay for purchases with cash, debit cards, or prepaid giftcards.
It sort of makes sense when I think about how they've probably only ever seen money as a necessary evil (of course not everyone believes that, but still) and debt as an enemy, which for the record, debt is not good.
Facebook IQ released a study in January 2016 that reported 46 percent of millennials believe that financial success means being debt free. That, in and of itself, is very telling for the entire generation.
Attaining this debt-free status has also affected millennials in that many of them move back in with their family after college in order to save money and the number of those looking to buy homes has dropped significantly - all in the name of avoiding debt.
What I Was Taught
Again, I know that there's some bias here since I'm a credit card expert, but when you avoid credit cards with the intent of "protecting yourself," you automatically give up all the good things about them, too.
I was always taught to avoid credit card debt, but not credit cards themselves. Using credit cards as a method of payment, not a means of finance, is good and I'm so glad I learned it at an early age. This leaves me free to enjoy the rewards of being a cardholder while avoiding any disadvantages to them. The biggest reward, for example, is all the free (or nearly free) travel I get to do based on the reward points and miles I've earned with my credit cards. I've been lucky enough to travel to places like Japan, Italy, Maui, and, on top of the travel, my credit cards still keep me safe with things like travel insurance and purchase protection - debit cards and cash simply don't offer that.
Nevertheless, it still took me some time to understand how credit cards helped my credit. For example, I remember canceling most of my credit cards in a misguided effort to improve my credit. Later, as I started learning about how credit works and writing about credit cards, I came to realize that having credit cards, and using them responsibly is actually the key to having great credit.
Every credit card account I have open (that's in good standing) adds to my credit history, and as the total amount of credit I have grows, the less my statement balances are affected by my debt to credit ratio, another important factor for credit scores.
Why Building Credit Is Still So Important
As one of my friends put it, it was as if we spent four years watching classmates smash their hands with a hammer, so we decided to avoid using hammers altogether, only to find out that we couldn't build our new houses without one.
Things have changed a lot since I was a younger, but not really in the realm of building credit. It was important then, and it's important now.
Some of my friends have lived a life of blissful credit card ignorance. In college, they treated credit cards like some sort of hard drug they were happy to avoid, but after college - a.k.a. the real world - they woke up to the fact that credit cards were less like a drug, and more like a powerful tool. As one of my friends put it, it was as if we spent four years watching classmates smash their hands with a hammer, so we decided to avoid using hammers altogether, only to find out that we couldn't build our new houses without one.
By avoiding credit cards, they lacked the credit history necessary to get a home loan or car loan and were forced to take a crash course in credit cards to catch up to others who had been using credit responsibly. Aside from receiving a competitive rate for home and car loans, a good credit score can also help you get the best deals on insurance and even help you avoid having to make a deposit with some utility providers - huge advantages when every penny counts!
Bottom Line
Debt is a huge part of our society and it's worth being concerned about.
Millennials, however, have overcompensated in leading a generation that avoids debt altogether by taking credit cards out of the equation. While I do agree that credit cards aren't right for everyone, they shouldn't be avoided nor feared without giving it a second thought. I can understand why millennials may feel like writing off credit cards is the best route for them, but I simply don't believe it's true.
Learn about credit cards, use them responsibly, and grow your credit before you need it. You'll be so glad you did.
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