Survey: Millennials don’t know how credit cards work

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From NY Post: Before your son or daughter starts using credit, make sure he or she understands that a credit card could be a weapon of self-destruction.

That’s because a new survey found that “millennials’ knowledge of credit cards is lacking” and “very concerning.” A few millennials — people born in the last decades of the 20th century — actually believe that missing a card payment would “improve” their credit rating, the survey said.

“It was only 6 percent, but it actually shocked us,” said Mike Brown, a research analyst with LendEDU and the author of its Millennials & Credit Cards Survey. “They might think that by missing a payment they are gaming the system,” he added.

Seventeen percent said missing a card payment would have no effect on their score.

LendEDU, a Web site that provides information for student loan refinancing, also found that many millennials are spooked by credit cards, yet many use them in self-destructive ways. This leads to late-payment charges and poor credit scores.

The report, which questioned 500 millennials from various educational backgrounds who use cards, also found that some 36 percent have maxed out cards. Some 48 percent carry card balances on which they pay hefty interest charges from month to month.

That doesn’t seem to make a difference to 45 percent of those questioned. They didn’t even know their credit-card interest rate. The survey also found that about a quarter of respondents are carrying three or more cards.

That is too many for young people, most financial advisers say. “One to three is enough to establish a credit history,” said adviser Charles Hughes. “More than that, and you are tempted to run up lots of bills.”

Other young people fear cards could ruin their lives, so they avoid them, the report said. About half polled said they found cards “scary.”

So fewer millennials are signing up for cards than before 2008 because of fears of what happened in the aftermath of the crash. Many suddenly unemployed cardholders couldn’t pay bills.

Why do so many millennials misunderstand credit, and why are some spooked by it? Brown said the problem is a lack of financial literacy, a sentiment shared by many in the cards industry.

“I think in general we are doing a terrible job of educating young people about credit,” added Bill Hardekopf, chief executive of LowCards.com. “We train young people to drive a car. We don’t train them to handle money,” he added. “The subject is taboo in many households.”

Brown noted most young people graduate from high school or college without any money education. So a large number of millennials, Brown noted, lack card knowledge or an understanding of college debt.

In a separate LendEDU survey earlier this year, “roughly 50 percent of respondents thought they would be helped by federal student forgiveness programs after graduation.”

“The truth of the matter is that a very small percentage will qualify,” Brown said.

See also:

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11 responses to “Survey: Millennials don’t know how credit cards work

  1. I wonder what the average IQ of Millennials are.
    Seriously, there is some evidence that Americans are becoming more stupid.
    https://fellowshipoftheminds.com/2013/10/08/study-finds-americans-really-are-more-stupid-than-the-average-human/

    Liked by 3 people

  2. This is a huge problem. CFPB has become a useless body of bureaucrats. They should have been focusing on making card issuers provide a clear 1 page info sheet containing basic terms/responsibilities and financial risk/benefit analysis for new card users.

    Millenials just don’t read fine print legaleze. CFPB is a waste of time and money. Everything the government does gets screwed up.

    Liked by 4 people

  3. The only thing Millennials can work is their iPhone (and maybe not actually know how that works either).

    Liked by 4 people

  4. According to the Council for Economic Education’s Annual Survey of the States, only 17 states require that high school students take a course in personal finance and that number has remained unchanged since 2014. Moreover, the National Endowment for Financial Education surveyed more than 1,200 K-12 teachers in 2009 and found that “while 89% of K-12 teachers agree that students should either take a financial education course or pass a competency test for high school graduation, only roughly 20% of the teachers believed that they are adequately prepared to teach personal finance.” With not much personal financial education being presented in school, it is not surprising to see that a 2015 Junior Achievement and All-State survey that found that a whopping 84% of surveyed teens look to their parents to learn money management. But, unfortunately, that same survey pointed out that many parents may feel uncomfortable talking about money matters with their kids, due to their lack of knowledge or their own financial missteps. […]

    Source –

    5 Financial Concepts To Teach Your Teen Before High School Graduation

    https://www.forbes.com/sites/markavallone/2016/06/07/five-financial-concepts-your-teens-should-understand-before-high-school-graduation/

    Liked by 3 people

  5. (My apologies for the length; I have some experience here. Hope it helps.)
    A lot comes from how the banks write their legal “terms of service”… BTW, read those ToS on goods/services you bought recently, esp. hi-tech items? “We guarantee/warranty NOTHING. May not work well, or at all. No liability.” In law school they called that a unilateral contract, generally unenforceable.

    Here’s what I found out about credit cards early on, as well as FICO scores later on (end result – buy only what you need, pay off in full by the due date):

    If you don’t pay your entire credit bill by the due date, not only do you then pay accrued interest on the entire amount (on most cards), you ALSO no longer enjoy a 30-day interest-free (“grace”) period on everything you purchase from then on; you begin owing interest on it ALL — past-due amounts PLUS new purchases etc. — from the minute the transaction goes through. Not fun. It’s like “reverse compounded interest”.
    That’s even if you pay $29,999 on a $30,000 due bill. That’s in addition to the late fee and penalty you pay if you’re a minute late paying online (although that has gotten better, thanks to the CFPB busting banks for charging a $40 penalty – late fee for being late on a $2 outstanding balance, and the banks extending the time of day they allow you to pay online on the due date, which used to be 1pm, then 3, then 5, then 8, to now 11pm or even 11:59pm if you call in person.) Less loan-shark-like.
    However, many will forgive the charges the first time if you call to complain or explain or cry or whatever. True on utility bills, too, especially on BS charges created mainly to make easy profits for the util co. But, NOT true for property tax bills; miss or pay late, and they’ll threaten to send the sheriff out to auction your property to pay the tax bill… seriously. On a bank error – fraud!

    2) If you think you’ll play smart and at LEAST pay the $25 minimum payment on a account due NEXT month on THIS month’s payment, so as to avoid such problems in case something comes up next month to cause you to be unable to pay that minimum next month when it’s due… think again. The banks caught on and say such payments ahead are NOT required to be counted as minimum payments in the future, but rather only as further principle buy-down THIS month. Ergo, you get another late fee etc.
    They went further and declared (likely at the behest of the CFPB or others) that if you have no balance NOW that would be due next month — regardless of your spending history demonstrating you certainly WILL have a due balance by due date next month), they won’t even accept an additional $25 toward such in payment, because it would be equated to calling them a bank (or debit card?), which would entail more responsibilities for them (!?!)

    3) If you have multiple balances on a single card with varied interest rates and think to play smart by paying down the highest interest rate balance first, think again. Banks have it codified now that any payments received will be applied FIRST to the LOWEST interest-rate balance, thus maximizing their profit from interest. They can apply the entire payment to a single balance in some cases, resulting in late/penalty fees on others on which you’d thought you were making minimum payments (although I’ve never done this).

    4) If you think you can be smart by consolidating bills by transferring one card balance to another, check the transfer fee, which is generally 3% or more ($5 minimum) of the amount transferred. I had a card once that had NO transfer fee; it treated check transfers just like purchases, so no interest either for at least 30 days (and sometimes for months). I used one once early on to pay property taxes, on a card I rarely used. Then ID thieves got my cc numbers, switched my mail address to NYC, I never got statements, missed payment on $70 dental cleaning bill I’d thought went to insurance, bank cancelled the check, property tax people hunted me down. Thieves could’ve accessed my $35K credit line had they made a minimum payment on that $70 dental bill…

    5) When you finally pay off your home mortgage, it actually HURTS your FICO score… because the computers think you’re no longer making regular payments on a revolving credit-type of loan. Seriously. “Not utilizing enough credit”. Cancelling a zero-balance credit card has the same effect.

    6) Equally crazy, if you have outstanding credit history and spending control, but aren’t using a substantial amount of the credit line on your credit cards, that ALSO lowers your FICO score. Really… they WANT you to spend more than you actually need to, maybe to “stimulate the economy”…

    7) Despite all that, I still favor using cards to be able to watch where I spend money, and on what. It also gives a legal trail to follow when goods or services I buy fail. Cards and banks aren’t inherently evil, and using them can actually be the smarter choice, IF the user is smart and disciplined in how they are used. That’s my take. I’ve been victim of CC ID theft multiple times (new card lost by USPS, skimmer at gas station), and it’s still been less problematic than using checks overall. And safer/easier than carrying cash.

    Now when they go to requiring chips implanted under my skin? I’m out.

    Liked by 3 people

  6. Great Information and timely, but no surprise. They have taken courses out of high school that could still prepare the snowflakes for real life experiences.
    School don’t consider them important classes, but I disagree. I find Home ec, bookkeeping, civics, shop, economics, business, etc. very important and prepares the kids better. Even writing is not being taught in many schools. Soon the elderly will be able to communicate with each other in writing as a secret way to communicate.

    Liked by 1 person

  7. I have an understanding of credit cards, even as a millennial in my early 30s (as have probably said before). Some of it should be common sense… but part of it and some other things I’m more aware of might be because of having had older parents. My mom is in her early 70s and my late dad would be in his late 70s if were alive now.
    I knew, at least what my mom has said, just having a “hit” like when your credit is checked it could lower your score. Particularly if it happens often or for a major purchase.

    Liked by 1 person

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