Survey: Millennials don’t know how credit cards work

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.

Source: NY Post

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