Having experienced recession growing up and witnessing the rise of new technologies through the years, millennials have inevitably developed a different way of looking at personal finance, dealing with credit, and utilizing financial services. There is much to say about the most educated generation to date, but how do their financial behaviors differ from their parents’?
Standing between millennials and financial freedom is student loan debt, which remains to be one of their biggest adversities. Debt among 19- to 29-year-olds by the end of 2018 has exceeded a whopping $1 trillion and student loans make up the majority of that.
TransUnion conducted a study on millennial financial health. The study gained a lot of insights as to how millennials use and acquire credit, manage debt, pay for healthcare, among other aspects. Some of the key findings of the study include:
- Millennials 25 to 34 have a 5% lower median income than Gen Xers in the same period of their lives.
- Millennials do not use credit cards as much as their Gen X counterparts, despite the rise of credit card access available for the former. They would rather use cash or debit cards.
- More and more millennials do not pay for healthcare in full.
- Millennials take more auto loan than Gen Xers.
- Millennials take more than twice as many personal loans as Gen X.
Now, why are personal loans attractive to millennials?
This is greatly influenced by the availability of online platforms on which they can apply. The availability and ease that such platforms offer are very attractive to millennials who practically grew up with the internet. Online lenders offer quick response time, reduced paperwork, and easier application process, to name a few advantages.
Another notable reason for this is the decline in credit card usage. The Credit Card Accountability, Responsibility, and Disclosure Act (CARD) of 2009 limited the marketing of credit cards to college campuses. Millennials opting to use cash or debit cards over credit cards may be attributed to this legislation, so instead of spending their money paying off credit card debts, millennials are focused on taking on auto and personal loans.
Personal loans are attractive to millennials because they do not require collateral. As most of them would usually make their first purchase with the aid of a personal loan, they may not have an asset to use as collateral in the first place.
Finally, millennials find personal loan as a good way to consolidate their debt; it gives them the chance to transfer the high-interest debt to a lower interest personal loan. Consumers can also pay off their personal loans on a regular schedule, over the course of several years, which helps them in financial planning and somehow have an idea on what lies ahead of debt.