Making Sense of Credit Card Delinquency Among Millennials
A chart just published by the New York Federal Reserve does not bode well for young millennials. It revealed a pattern of 18-29-year-olds who are more than 90 days late on their credit card payments.
This is troubling for a number of reasons. For one, the millennial age has a reputation for being debt-averse and suspicious of banks and creditors. The millennial generation grew up witnessing their parents struggle throughout the late-2000s Great Recession, which destroyed the US economy.
Economists say that this is what led to millennials' distrust of banks and aversion to taking on credit card debt. In reality, only 41% of persons in their twenties possessed a credit card between 2008 and 2012.
The point is that, until recently, millennials were cautious with their money and, if they had any, were usually responsible with credit card debt. But it isn't the only aspect to be concerned about in this expanding trend.
UNEMPLOYMENT IN THE MILLENNIUM
It's one thing to have credit card debt; having no way to pay it off is a lot more frightening prospect, yet it's one that many millennials are facing. The millennial unemployment rate reached as high as 12.8 percent just a few years ago. When you compare that number to the 4.9 percent of other eligible age groups who were unemployed at the same time, it becomes even more depressing.
The US economy has recovered from the Great Recession and has been growing for the past decade, therefore employment are available. The issue is that millennials have higher job aspirations than previous generations.
Millennials are frequently viewed as a highly entitled generation, which is reflected in the way they choose occupations. Members of this age have turned down many job offers because they expected a higher pay rate despite their lack of expertise.
Education may also have a role in the high unemployment rate among millennials. Many businesses are claiming that future employees lack real-world abilities such as critical thinking and fundamental communication. Millennials are also more likely to have gone toward theoretical subjects in college, which does little to assist the problem.
This period of unemployment could not have occurred at a more inconvenient time for millennials. People of the preceding generation typically think that getting started in life financially today is considerably more difficult than it was when they were young. Part of this is due to the rising expense of higher education, which has resulted in larger student loan debt than ever before.
In terms of career opportunities, this creates a vicious cycle for millennials. A recent college graduate, for example, would open a line of credit to assist furnish a new apartment in the hopes of finding work quickly. Perhaps he also owes a lot of money on college loans. Things are precarious for him or her when he or she enters the job market for the first time, and a combination of high expectations, increasing debt, and a lack of real-world skills is making it tough to find work.
As a result, their credit ratings are plummeting, and guess what? Some employers may consider a candidate's credit score when deciding whether or not to hire them.
WHAT ARE THE CAUSES OF MILLENNIAL CREDIT DELINQUENCE?
Seeing a generation that has traditionally been suspicious of credit card debt and realizing that it is more difficult for them to find work are both terrible signs, but what is actually causing the spike in delinquency among millennials?
Raising interest rates is one of the most immediate drivers to the rising amount of millennial credit card debt. Interest rates were at an all-time low in 2018, but they are starting to rise again, meaning that even people with solid credit are paying 18-25 percent interest rates.
Another component in this development is student debts. When it comes to student loans, the previous generation had the advantage of far more lenient crediting, with major banks offering dedicated student credit cards. Credit cards for students used to be quite easy to come by, but the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (commonly known as the CARD Act) has changed that.
Students must now demonstrate that they will be able to repay their student debts, or at the very least that their parents will assist them. As a result, millennial students are taking out high-interest loans to pay for their education, making it difficult to get out of debt.
KEYING IN ON PERSPECTIVE
This may appear to be a financial emergency, but it is critical to maintain a sense of perspective. Even if millennial credit card delinquency is on the rise, the debt-to-income ratio published by the Federal Reserve is at its lowest level since 1980. Even with this increase in millennial payment delinquency, delinquency rates have been at an all-time low in the last year, thus we are nowhere near a financial disaster.
This is not necessarily a trend that will continue, as many millennials are only starting to build credit and enter the work market. While all young individuals should be cautious and responsible when it comes to credit card debt, the recent Fed study should be viewed as more of a cautionary tale than a foreshadowing of a full-fledged crisis.
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