Many Americans, when in their youth, remember the time they obtained their first credit card. A novel concept, indeed: with the ability to spend money that you do not currently possess, it opened doors for many who would otherwise not be able to cover emergency expenses or purchase items necessary in the here and now.
Fast forward to the present day, and you will find that many of today's youth are not following in their parent's footsteps, at least when it comes to credit cards.
Credit card use among young adults has been plummeting for years, but the largest drop in recent history occurred between 2011 and 2012: in 2011, 40 percent of college aged students had credit cards, whereas only 35 percent of students did in 2012. The average balance on young adults' credit cards has been declining, too, and currently stands at approximately $750: down nearly thirty percent since 2007 and over 60 percent down since 2000. Out of those who have cards, one out of every three do not have any current credit card debt.
Are younger people developing better spending habits, or has outside circumstances forced this trend? It turns out that it is a little bit of both.
The Great Recession certainly impacted earning potential, resulting in a lower median wage for young workers when compared to five or ten years ago. There is also the ballooning student loan debt crisis that many young adults now have to deal with: in many regards, this has become the new default debt, as opposed to credit cards.
Certainly regulatory mechanisms have also had an impact. The Credit Card Responsibility and Disclosure Act put forth certain stipulations on who can receive a card and how credit card issuers can advertise to young adults. One of the biggest actions was requiring those under the age of 21 to demonstrate that they are fully employed, or else have a co-signer in order to be issued a card. This is much different than five years ago, when abundant credit was being handed out to anyone with a Social Security number.
As a result of these circumstances, more and more young people are realizing that life without a credit card is not such a bad thing. By and large, young adults are still spending money on needed items and doing so with fewer and fewer of those purchases being fueled by credit cards.