04/22/2016 02:08 EDT | Updated 04/23/2017 05:12 EDT

Millennials Need Credit (But Don't Have It)

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mid section view of a woman showing her empty pockets

When in debt, shy away from credit? That may just be the case with millennials.

With the continued rise of student loans, debt isn't new to this generation. According to the 2015 Graduating Student Survey by the Canadian University Survey Consortium, the average student in Canada owes $27,000 and growing. And while credit card arrears in the US added up to around $917.7 billion in 2015 the country is experiencing an all-time-high $1.2 trillion student loan debt owed.

Yes, millennials carry debt, but they're seemingly cautious about the kind of debt they carry.

Graduation often means the start of years of student debt repayment. And then, factor in the loans accumulated to purchase a home and a car, get married, and have children. It's no wonder, then, that this generation may be guarded about using credit cards. They're not as quick as generations before them to sign up. Perhaps this is because they learned how the financial crisis of 2008 affected their parents' financial portfolios and they're determined not to experience such a devastating impact themselves.

The millennial payment method of choice isn't a credit card.

According to this article, one survey showed that 63% of adults aged 18-29 didn't have a single credit card, while another 23% had one only Visa or Mastercard. The article goes on to point out that the holiday spending season can be the perfect time for millennials to learn how to use credit cards wisely, but I'd suspect they could do it at much less impulsive times of year.

Stats show that millennials prefer to use debit cards to credit cards for their purchases. Millennials are the first generation to grow up with debit cards, which may explain this pattern. Several findings prove that this generation isn't fond of credit products. The reasons for this may be many, but the top may be controlling spending and fear of debt. This lack and hesitance to use a credit card among millennials is causing them more harm than good in the long run.

Consumers, especially millennials, are better off using credit for purchases than relying on their debit card. This Time Magazine article points out why millennials should seriously think about changing their purchase behaviours. Reasons include safeguarding against fraud, creating credit history, and rewards that many credit cards provide.

Missing out on credit advantages

According to a recent NerdWallet study, millennials have the lowest average credit score of any other generation. As pointed out in the Financial Post, the average millennial credit score is 625. Twenty-eight per cent of millennials are ranked below 579. In terms of credit scores, anything above 660 out of 850 is considered good. In the long run, not using credit cards and not building credit will hurt this generation rather than help them. A solid credit score is absolutely necessary to rent an apartment, purchase a home, and get the best insurance rate or a loan. These are all factors millennials need to seriously consider as they move on to these milestones in their lives.

Using credit cards on the other hand also needs to be done so responsibly. The last thing anyone wants, especially money-conscious millennials is debt and poor credit score. There are ways to use credit cards to one's advantage and doing so without hurting credit score and financial health. This article points out some important tips on how millennials can be responsible when using their credit cards.

With preference to use debit cards to pay for purchases, credit card companies need to find new ways to communicate with millennials to convince them why getting and using credit cards is in their best interest. Both Mastercard and Visa are already experimenting with new methods to attract millennials. Alternative methods of paying for goods and services will soon be put into place. With applications like Google Wallet and Apple Pay, it seems much more likely that millennials will get onboard, but these credit gadgets are going to solve the fear of debt.

Instead, they need champions and influencers to communicate the benefits of credit and the knowledge to avoid the pitfalls. Companies have a great opportunity in this regard, but they have to remember to stay transparent, meaning all the fine print also has to be front and centre. There's nothing worse than millennials finding out you didn't bring important information to the surface.

Millennials don't have long standing relationships with brands in the traditional categories like mortgages, insurance, automotive, etc., so they may not realize how important having a credit rating can be when the time finally comes to buy a house or a minivan for their family.

Simply being able to use a credit card is not going to be enough for this generation. They will want to be vigilant about how they use it to their advantage. Given the status of using a card well (for example getting enough points for an exclusive experience), it should be a slam-dunk to make credit a part of their lives. This generation is careful about accumulating any more debt than they need to. They need to understand the benefits of credit card ownership and appreciate it as a tool that will help their financial future, not hinder it.

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