by Elizabeth Aldrich | Nov. 28, 2018
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For a while now, the story has been that millennials don’t like credit cards. It all boils down to the financial crisis of 2008 and mounting debt, the mantra goes. Some thinkpieces even go so far as to criticize the generation’s fear of debt, claiming they’re a threat to the credit card industry.
But maybe the credit card industry just hasn’t figured out what millennials want. As more folks born between 1982 and 2000 become creditworthy, we’re seeing that they actually like credit cards and their accompanying rewards -- they’re just picky.
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Given that millennials are currently around 18 to 35 years old, their lack of credit card usage can be largely blamed on age. Up until recently, millennials have focused on credit-building. A study done by LendEDU in June 2017 showed that nearly 70% of millennial credit card users got their credit card with the purpose of building credit. Now, they’re finally getting around to focusing on rewards.
A study published by Aite Group in February 2018 shows that credit card use among millennials is picking up. According to the study, 45% of millennials applied for a rewards credit card last year, compared to 29% of all cardholders. They’re using those cards, too -- 80% of millennials say their newest rewards card is their go-to card.
But there’s something else going on here. On top of being debt-wary, millennials are notoriously skeptical to marketing tactics. They generally believe institutions to be untrustworthy and, more than other generations, prefer to make informed decisions based on findings from the internet and recommendations from friends and influencers on social media.
All of this is to say that millennials do their research. They aren’t going to jump at the first mailer they receive for a new credit card.
If it’s true that millennials are inherently conservative when it comes to credit cards, it’d be fair to assume they rely on cards with no annual fee and low interest rates -- something for emergencies and credit-building. In fact, the card that finally got them signing up in droves is the exact opposite: a premium travel credit card with a $450 annual fee.
The release of the Chase Sapphire Reserve® at the end of 2016 produced a millennial turnout that is unheard of in the credit card industry. A significant portion of early applicants were millennials, and the initial demand for the credit card was so high that Chase actually ran out of physical cards.
It’s not that millennials didn’t understand the benefits of credit cards, but rather that credit cards didn’t understand how to properly benefit millennials. As Pam Codispoti, the creator of the Chase Sapphire Reserve®, remarks to Bloomberg Businessweek about the idea that the generation doesn’t like credit cards, “We found that just not to be true. What they were looking for was something different than what the market had to offer at the time. They weren’t interested in their father’s credit card.”
What were millennials interested in? If the success of the Chase Sapphire Reserve® is any indicator: flexible travel rewards, luxury perks they might not otherwise be able to afford, and perhaps most of all, social proof.
Chase decked the Reserve out in travel and dining rewards, wrapped it all up in a lucrative welcome bonus that could be used for a number of different travel expenses, and then spent nothing on marketing. Instead, they waited for social media to market the card for them -- and it worked.
Millennials are taking a new approach to credit card rewards. The most notable difference between them and older age groups is that millennials overwhelmingly prefer travel rewards. In a recent survey done by Discover, 49% of millennials redeem their rewards for travel, more than any other generation.
While cash-back rewards offer a more consistent value, travel rewards have the potential to offer a higher (or lower) value, depending on how they’re being redeemed. A typical cash-back credit card might offer an average return of 1.5% or, if you’re lucky, 2%. A strategic redemption of travel rewards, on the other hand, can yield returns as high as 4% or 5%. Spend some time browsing one of the dozens of blogs written by and for millennials on travel and credit card rewards, and you’ll see that many of them are maximizing their returns.
So, perhaps millennials are open to risk after all, as long as it’s worth it to them. Millennials aren’t buying homes as quickly, but they are quitting their stable jobs to work for mission-driven startups, tackle entrepreneurial pursuits, and move abroad. This characterization of millennials as risk-averse and fiscally conservative makes one major mistake: it measures them by their parents’ standards.
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