The recession continues to have a firm grip on U.S. credit cardholders as fewer Baby Boomers own premium cards and consumers of all ages are more likely to carry decreased balances or no balances at all, a new survey report indicates.
In June, Auriemma Consulting Group, with offices in New York and London, surveyed 502 U.S. credit cardholders to examine card-use habits among Baby Boomers (ages 48 to 65), Gen Xers (ages 31 to 47) and Millennials (ages 20 to 30).
The percentage of Baby Boomers owning a premium card (Gold, Platinum, etc.) fell to 52% of respondents from 63% in a similar survey 2007, according to the resulting Cardbeat report “Generational Differences in Card Usage.”
The percentage of users carrying credit card balances dropped in all three age groups, with the overall rate at 58% compared with 65% in 2007, while overall average card outstandings declined to $1,890 from $2,517 in 2009 and from $2,260 in 2007.
Issuer policy changes in response to the recession had an impact on annual percentage interest rates and credit lines for all age levels, while the youngest generation studied absorbing the biggest increase in cards carrying annual fees, the survey found.
Average annual percentage rates rose to 14% for Millennials in 2011 from 13.7% in 2009, to 13.3% from 12.4%for Gen Xers, and to 13.7% from 11% for Baby Boomers, the survey found.
All three generation categories experienced a decline in credit lines the past two years. Baby Boomers saw their average credit line drop to $9,662 in 2011 from $10,561 in 2009, while for Gen Xers it fell to $6,974 from $8,423 and for Millennials to $4,208 from $5,660.
The presence of an annual fee on a credit card doubled for Millennials to 27% of respondents in 2011 from 13% in 2009, “suggesting younger and new-to-credit groups were bearing a disproportionate share of the higher costs imposed by many card lenders in response to the recession,” Cardbeat reports.
The credit-line changes and rising card fees for the youngest card users are “the most troubling” data in the Cardbeat report, says Auriemma consultant Scott Strumello.
“The youngest group, with the least credit established, takes a bigger hit than the other groups?” Strumello asks. “This group is more inclined to use debit cards since day one to begin with, so is the credit card industry killing its future?”
One would think a bankcard issuer that offers both credit and debit cards would want to encourage customers to use their credit cards because they generate more interchange revenue, Strumello says.
In coming years, Millennials are likely to be the first to embrace products such as mobile banking and pay for purchases with their mobile phones, while the GenX segment continues to struggle the most with unemployment, making financial decisions more difficult, the report concludes in an assessment of age groups.
Baby Boomers “are by far the most comfortable users of credit cards, but their spending has trended steadily downward over the past four years,” the report notes.
The paradigm shifted for credit card use over the past four years because “spending with caution appears to be the new mantra, as all three segments have been personally or psychologically impacted by the deep recession,” the report notes.
But the industry is showing signs of improvement. Consumers acquiring a new general-purpose credit card in the past 12 months increased to 18% in the second quarter of 2011 from 11% in the last quarter of 2009, according to a base of respondents of about 1,300 per quarter, according to the Cardbeat report. This is a positive sign for the credit card industry and indicates it has stopped its cutbacks and is resuming marketing programs, Strumello says.
“This would indeed suggest stabilization following some dramatic industry changes and increases in loss rates, which put new card acquisitions on hold for a number of credit card issuing banks,” the report notes.
Regarding specific card use overall, 80% of the respondents said they had a Visa card, while 61% had a MasterCard. The younger the respondents, the less likely they were to hold a Discover card, as 24% of Millennials had a Discover Card compared with the 35% for Baby Boomers and 28% of GenXers who did.
