Gen Y consumers can teach their elders a few things about saving and spending. How do they feel about debt?
Gen Y can teach the baby boom generation a thing or two about credit card debt, according to recent surveys of the borrowing habits of Americans.
U.S. consumers began shedding credit card debt at the start of the recession and have steadily continued to reduce their credit card balances, according to the latest government data. In the third quarter of 2011, U.S. consumers decreased the amount owed on credit cards at an annual rate of 3.25 percent.
Baby boomers have played a relatively small role in the decline, while Gen Y consumers made the biggest adjustments in behavior, said the Auriemma Consulting Group in a prepared statement announcing the result of their survey. The Gen Y – or Millennial - generation is made up of Americans who were born between 1980 and 2000, and are now teenagers and 20-somethings. Many are the children of baby boomers, members of the post World War II generation born between 1946 and 1965.
The percentage of baby boomers who say they frequently carried a balance on their credit cards declined from 36 percent in 2007 to 31 percent in June 2011, according to Auriemma. In contrast, 26 percent of Gen Y consumers said they frequently carry a credit card balance in June, down from 44 percent in 2007.
Gen Y consumers favor debit cards over credit cards in part because of a fear of falling into debt. According to Patricia Sahm, managing director at Auriemma, “Millennials have turned away from credit cards in droves since the recession began, and it’s not clear to what extend they will come back when conditions improve. Many have been scarred by seeing friends or family struggle with unmanageable debt loads, and view credit as dangerous rather than helpful.”
Millennials lead the way in saving, as well as spending, according to a Millionaire Corner survey of Mass Affluent investors conducted in December. The Mass Affluent are defined as have a net worth of $100,000 to $1 million, not including primary residence. More than 42 percent of Gen Y Mass Affluent reported an increase in savings, compared to 30 percent of the group as a whole. Nearly 69 percent said they plan to reduce their debt in the current year, compared to 58 percent of all Mass Affluent. Fifty-five percent said they will reduce debt at the expense of increasing their saving, compared to 36 percent of the group as a whole. More than half plan to reduce their debt between 25 and 50 percent, while 10 percent plan to eliminate their debt entirely.
A greater distaste for debt may be curbing credit card use among Millennials, but the generation also reports more trouble obtaining credit. More than one-third of Gen Y investors said the tightening of the credit market has impacted them because they are not able to as readily obtain credit products.