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How time and technology impact millennial credit growth


The millennial generation comprises one of the nation’s largest population segments. According to U.S. Census Bureau, consumers aged 22-34 earned 25 percent of all income in the U.S. in 2015. Think about that. It equals enormous buying power and makes millennials an attractive consumer segment for many industries, including financial services.

Economic cycles, technological advancements and lending regulations impact each generation differently. However, the resulting shifts in consumer preferences are difficult to isolate and evaluate. Are millennials truly a different generation of credit consumers? If so, which differences matter—and how might lenders capitalize on them to drive growth for themselves and increased utility for their customers?

To find out, we conducted a study that compared millennials to their predecessors, Generation X. For purposes of our study, we defined millennials as consumers aged 21-34 as of the end of 2014. To neutralize the age effect, we studied 36 million Gen X consumers in this age band as of fourth quarter 2000, and 60 million millennials in this age band as of Q4 2014.

We also measured the most basic elements of credit dynamics: credit participation and origination growth across different products. We utilized the VantageScore 3.0 credit score and found more subprime consumers—those with a score from 300 to 600—within the millennial generation. At a more granular level we found the distribution of risk differed at each specific age. We believe regulatory changes in part drive this discrepancy: As an example, many millennials start their credit journey later than Gen Xers due to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 and limitations on college marketing programs.

Fewer credit cards

Our research showed that millennials don’t carry credit cards like their predecessors. At each age, a significant gap exists in credit card participation for millennials. For example, at the age of 30, 76 percent of Gen X consumers had one or more general purpose credit cards, while only 56 percent of millennials had one or more. Similarly, 64 percent of Gen Xers had one or more private label cards, such as a retail credit card, compared to just 43 percent of Millennials. This gap held across all ages in the study.

bankcard participation for Millennials

Millennials not only carry half the cards that Gen Xers did at that respective age, but also keep much lower average card balances. For instance, a 30-year-old Gen X consumer had an average outstanding balance of $4,598, compared to $3,892 for millennials: 15 percent lower, even without inflation adjustment. With the tremendous growth in debit card transaction volumes since 2000, consumer preferences have likely shifted toward other products such as debit and prepaid cards. 

One promising trend is that millennials show the same loyalty to their top-of-wallet card (the most used) as Gen X consumers. A millennial with three cards in wallet puts 70 percent of her outstanding balance on one. A comparable Gen X consumer also carried a similar share, 69 percent. This invites issuers to find those loyal millennials—and grow their share within this large consumer segment—with the right value proposition, convenience and rewards. 

No auto lending lag

Many believe younger consumers don’t buy cars that often because they live in cities and/or ride bicycles. Yet we found no material participation gap in the auto finance market between the two generations. In fact, millennials open auto loans or leases at a much faster rate than Gen X consumers: 15 percent of 25-year-old millennials versus 12 percent of their year 2000 counterparts. Across all ages, more millennials opened auto loans or leases over our study period.

auto loan millennials

Buoyed by a strong labor market, steady gas prices and low interest rates that enable longer terms and lower monthly payments, millennials are taking advantage of easier vehicle financing.

Except for subprime borrowers, millennials who open new auto loans or leases perform similarly to comparable Gen X consumers. However, we do not believe this trend is millennial-specific. In general, subprime borrowers across generations perform worse, with higher access to credit and longer terms creating adverse selection in the market.

Major mortgage gaps

Millennials have significantly lower mortgage market participation compared to Gen Xers. We observed 6 percent of 25-year-old millennials with a mortgage on their credit files versus 14 percent of same-aged Gen Xers. At 34, a prime age for homeownership, the gap grew: nearly four in 10 Gen X consumers (39 percent) had a mortgage compared to 29 percent of millennials.

The mortgage crisis and its aftermath affected how consumers entered the market. Mortgage credit supply changes tightened dramatically, impacting millennials and other generations; the U.S. Census Bureau reported homeownership declines across all age groups. To better understand differences in mortgage demand, we measured mortgage openings rates for super prime millennials—those with a VantageScore 3.0 credit score of 781 or better. Generally, consumers in this best-risk tier always have easy access to credit; supply-side changes are unlikely to influence results. 

In 2001, 13 percent of Gen X consumers aged 34 opened new mortgages—but just 7 percent of millennials did so in 2015. While a much higher percentage (14 percent) of 34-year-old super prime millennials opened a new mortgage in that period, a gap of 4 percent remains compared to super prime GenXers (18 percent).

Clearly for least-risky millennials, access represents a major driver for mortgage participation. However, that 4 percentage-point gap may result from lower incomes of younger consumers today versus those who previously entered the labor market. The Census Bureau reportsthat consumers 25 to 34 had a median household income of $57,000 (not adjusted for inflation) in 2015 versus $60,000 in 2000. The lack of desire to own a home may not factor as much as affordability and access to credit.

Personal loan growth

The personal loan sector has gained tremendous momentum of recent thanks to new entrants and consumer demand: It marks the only sector where millennials surpassed the preceding generation at every age, opening personal loans at twice the rate of Gen Xers.

millennial personal loans

This speaks to convenience on consumer preferences. Agile technology enables FinTech lenders to capture a consumer segment that demands it. While not necessarily credit averse, millennials desire credit access with speed and ease as key ingredients.

Millennial mantras: “simple, relevant, easy to access”

More than ever, lenders must develop financial products accessible via platforms that match generational preferences. As millennials enter their prime spending years, it pays to understand how they differ from preceding generations.

The study proves millennials are indeed unique: They tend to be credit card averse; buy and finance vehicles; and open personal loans faster than Gen Xers. Home ownership and mortgage participation certainly lag due to credit access and affordability. Once lenders understand underlying causes for these differences, they can create products, platforms and experiences that cater to this younger generation.

Keep it simple, relevant and easy to access. Treat them differently, and growth in this large, important segment can be yours. Indeed, understanding the millennial generation sets the stage for new revenue generation.


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An expert in consumer credit, including personal loans, bank cards and mortgages, Nidhi Verma is Vice President of Research and Consulting in the Financial Services unit of Chicago-based TransUnion