Study Reveals Credit Differences Between Millennials, Gen Xers


The Gen X and Millennial demographic make up over half of the buying power in the United States. But the two generations are distinctly different in their credit dynamics, thanks to the driving force of digitization.

Per a recent TransUnion study, millennials are now using less credit cards and exploring other financing options such as auto and personal loans.

This shift is attributed to integrated advancements in tech and financing, as the millennials become the first generation to fully experience mass-market digitization.

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The study

The study defined Millennials to be individuals born from 1980 to 1994 and Gen Xers as those who were born from 1965 to 1979.

The researchers then evaluated trends in credit originations for the period of 12 months (2001 for Gen Xers; 2015 for Millennials) while both generations were at the age of 21 and 34.

The results revealed that Millennials had a 21 percent higher rate of leaning towards opening new auto loans and preference for personal loans by almost a double rate compared to their Gen X counterparts at the same age.

The study showed a distinct shift in credit choice among newer generation of borrowers. But why is this happening? Experts believe the accessibility of credit programs that are not previously available is making the shift possible.

“Digitalization allows consumers of all ages to more easily shop around for vehicles, making the process less onerous. This is the market Millennials have grown up in, and the one in which they most naturally operate,” the study’s co-author and TransUnion’s innovative solutions group VP Nidhi Verma said.

The convenience of online shopping is opening more avenues for the younger borrower market to explore their financing options other than credit cards – an opportunity that wasn’t available to Gen Xers in their time.

Other findings

Aside from carrying fewer credit cards, Millennials are also maintaining lower balances in those cards compared to Gen Xers, per the study. There is also the rise of debit card transaction among the younger generation. This is supported by a Fed data that charted the growth of debit card transactions, recording 60 billion in 2015 from just 8 billion in 2000.

Digitization, however, did not help make mortgages more appealing to Millennials. Only 5 percent of Millennials opened new mortgages between ages 21 to 34, compared to 10 percent of Gen Xers during the same ages.

Access to mortgage also declined for the study’s focus age group. Thirty-nine percent (39%) of total mortgage originations in 2000 were by nonprime borrowers. In 2016, the nonprime share of originations made by the 21 to 34 age group decreased to 20 percent.

The mortgage non-preference, however, is driven by other factors that are too weighty to pull up by mere accessibility.

Aside from tightened qualifications after the 2008 housing crisis, rising home prices also posed a problem for many potential borrowers. Surprisingly, issues with affordability had less to do with indirect factors and was more about the huge income gap between the two generations.

This fact is supported by data from the US Census Bureau which determined that median household income of consumers aged 25 to 34 decreased from $60,000 in 2000 to just $57,000 in 2015. The number of adults aged 25 to 29 who are living with their parents also increased from 15 percent in 2000 to 25 percent in 2014.

But this did not dampen the younger generation’s spirit to pursue the American dream. In fact, out of the 1,340 of consumers surveyed by the credit bureau in July of this year, almost 75 percent of Millennials between ages 23 to 37 expressed an intent to own a home in the future.

New problems

The current rift in the two generations’ credit profiles is largely driven by the increase in accessibility due to digitization, that the study has clearly established. But taking it as the sole factor influencing credit preference is naivete to the dynamic, multi-sided nature of the whole borrower-credit market.

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