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Millennials had been good at staying out of bad credit card debt. Not anymore

Key Points
  • Credit card delinquencies of 90 days or more have risen the most sharply among young Americans, as financial services firms entice them with card offers.
  • Millennials, raised during the Great Recession, historically have stayed away from bad debt.
  • Delinquencies across all forms of debt are elevated for younger Americans compared to older generations.
Millennials in worse financial shape compared to earlier generations

Millennial and Gen Z Americans, many raised during the depths of the Great Recession during the late 2000s and early 2010s, long have been wary of Wall Street products and act more thrifty than their parents' generations. Recent research from the New York Federal Reserve, though, reveals an alarming trend: Rising credit card delinquencies among these younger consumer classes.

Among Americans age 18 to 29, credit card delinquencies of 90 days or greater surpassed 8% of balances in the first quarter, hitting an eight-year high.

"It is the 'We don't own' generation. It is unusual when we think of this cohort. These were the people who didn't take on debt," said Dan Primack, business editor at Axios, in a Monday appearance on CNBC's The Exchange.

Falling for more credit card offers

The rising credit card debt comes at a time when big financial services firms are finding that this consumer debt demographic is more enticed by "extravagant" credit card sign-up bonuses than ongoing cash back or zero-percent interest offers, according to a new report. Zero-percent interest on new purchases for 18 months (11%) and zero-percent interest on balance transfers for 21 months (6%), were well below interest in sign-up bonuses and travel credits.

The rise in consumer debt also picked up as the Federal Reserve was nearing an end to its era of ultra-low interest rates. While the Fed has put further rate increases on hold, the central bank was raising rates from unprecedented lows in 2018, and that influences rates on products like consumer credit cards.

"With interest rates going up, the average credit card rate is 18%, and that's for people with good credit," said Ted Rossman, industry analyst at "It can be as high as 25%."

Woman shopping online on her phone while sitting at the café.
Mixmike | Getty Images

The NY Fed data shows that delinquencies of 90 days-plus are highest among the 18-29 year-old age group of Americans across all forms of debt, with credit card debt being the highest by percentage.

Primack pointed to the strength of the U.S. economy, which has now been expanding for a decade, as a factor in the increasing level of debt from Americans predisposed to be careful with their money.

Rossman said there are only two credit card user categories an individual ever wants to be in: the group of people who make their effective interest rate zero by paying their balance in full every month, or in the least, being eligible for a balance transfer offer that will convert their rate to zero.

Credit card usage is up, he said, and the best option is to be among the 40% of cardholders paying bills in full every month.

The rate at which credit card balances become delinquent has been rising, and that has coincided with an increase in younger borrowers entering the credit card market.
Andrew Haughwout
senior vice president at the New York Fed

Rossman cautioned against reading too much into the rise in delinquencies. He noted that the Fed's own data shows a debt-to-income ratio in the U.S. at its lowest point since 1980.

"The rate at which credit card balances become delinquent has been rising, and that has coincided with an increase in younger borrowers entering the credit card market," said Andrew Haughwout, senior vice president at the New York Fed in a statement. "However, these delinquency rates are increasing from historically low levels and remain below pre-financial-crisis levels."

NY Fed data shows new credit card accounts declined steeply for young borrowers between 2008 and 2012 — by 2012 only 41% of those in their 20s had a credit card. Now more than half (52%) of those in their 20s have credit cards, the Fed noted in a summary of its Q1 report.

The good and the bad of student loan debt

Throughout the economic recovery of the past decade, student loans had grown much faster than other sources of debt. The Federal Reserve Bank of New York has consistently made the case that student debt is a "worthwhile investment." The bank has cited the fact that college graduates earn, on average, 80% more than those without a college degree and are also less likely to face unemployment.

NY Fed data shows that student loan growth has "completely broken with the business cycle" growing steadily between 2004 and 2016 — since 2016, 18% of the population has held student loans, up from only 10% in 2004.

But student debt delinquencies of 90 days-plus also are rising, at 10.9% of aggregated balances in Q1. The total of $1.49 trillion in student loans is second among forms of debt, behind mortgages. The NY Fed describes the student loan delinquencies as being at a high level compared to other forms of debt.

Having to pay off student loans can influence early career decisions negatively. A recent graduate might be less likely to start a business if they have student debt, or less inclined to take a higher risk or lower-paying but more satisfying job. Some recent research shows that half of student loan holders say high monthly loan payments influenced their career choices.

The burden of student loans is in the news again with several Democratic candidates for president promising to wipe out student debt. This weekend, Robert Smith, private equity billionaire and the wealthiest African-American man, made headlines when he announced during a commencement speech at Morehouse College that he was paying off all student debt of the college's graduating class (estimated at $40 million).

It is hard to get out of credit card debt

Rossman said the overall message on student loans should not change based on credit card trends.

"Student loans are good debt, building skills and hopefully wealth in the long run, and interest rates are a lot lower," he said.

Federal student loan rates for undergraduates will fall to 4.53% for the next academic year, down from 5.05% for the 2018-19 academic year.

Rossman noted that once a person is in credit card debt, it is hard to get out, and that does not bode well for the younger Americans among those with rising delinquencies. More than half of people in debt remain that way for more than a year; 37% for two years.

"Credit card debt is much harder to get out of, with the average [interest] rate of 18%," he said.

The NY Fed report shows that total household debt increased by $124 billion (0.9%) to $13.67 trillion in the first quarter of 2019, the 19th-consecutive quarter of increase. It is now higher than the previous peak of $12.68 trillion in the third quarter of 2008 during the Great Recession.

The Fed findings may not indicate a generation that has transitioned from risk-averse to overconfident, but it is cause for concern about the overall state of younger Americans' finances, the experts said. Credit card delinquencies have been rising since 2017, and research shows that most people who get into credit card debt are not irresponsible — they needed the credit to cover day-to-day expenses or for emergencies, such as medical situations or car repairs.

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