Youth living without credit cards doubles, overall debt down since economic collapse

Not wanting to be heavily indebted like their older counterparts or living through life with a balance, American youth between the ages of 18 to 29 are starting to ditch the credit card in favor of a more prudent lifestyle.

According to data from millions of consumers collected by credit score provider FICO, 16 percent of youth in the United States do not have a credit card, up from eight percent at the start of the Great Recession in 2007. Due to this, credit card debt has fallen by one-third from the average of $3,073 to $2,087 for each individual.

Furthermore, overall debt has dropped, despite the enormous surge in student loan debt. The data suggested that there has been a decrease in other forms of debt, such as mortgage, which has translated into higher credit scores. FICO found more than 11 percent of young consumers have FICO scores of 760 or higher, which is up from 8.6 percent in 2005.

Although older Americans are starting to catch up, FICO found that overall debt is higher than what it was nearly a decade ago. This has led to a general reduction in credit scores of 1.7 percent for those between 40 and 49, 1.8 percent for ages 50 to 59 and 3.8 percentage points for consumers older than 60.

The Federal Reserve said Friday that consumer borrowing rose $11.1 billion in April to $2.82 trillion and is the 20th consecutive monthly gain and another record level. The data showed more Americans borrowed money to attend college and purchase vehicles without enough caution – this category jumped $10.4 billion to reach $1.97 trillion.

“Non-prime borrowers continue to gain more access to credit. In conjunction with the growth in the overall number of card originations in the last few years, it means that the credit card pie is bigger, and non-prime consumers are getting a bigger slice of that pie,” said Ezra Becker, a financial expert, in a press release on overall delinquency rates.

“It is possible that the slight increase in delinquencies year over year can be attributed in part to the increased share among nonprime borrowers of new accounts, but even so these delinquency numbers are not a cause for concern. We’ve found that consumers continue to value their credit cards more than ever and will likely do so at least until unemployment further abates.”

FICO explained that the growing number of younger Americans transitioning from credit cards to debit cards can be identified with watching older generations get hit hard by the economic downturn and see their finances erode as time went on.

It has been reported that prepaid debit cards have been surging in popularity over the past five years. These cards, which are essentially reloadable debit cards, are marketed towards youth, minorities and those who are not affiliated with a financial institution. It is believed that these cards come with a number of benefits, including being safer than carrying cash, worldwide acceptability and functionality, becoming indebted and obtaining one without having credit.

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