New TransUnion study explores Millennial and Generation X credit dynamics
As the first generation to be fully immersed in mass-market digitalization, Millennials are slowing their credit card usage while increasingly using other credit products such as personal loans. A just-released TransUnion (NYSE:TRU) study found that Millennials are carrying on average two fewer bankcards and private label cards than Generation X (“Gen X”) consumers at the same respective ages. Conversely, Millennials’ appetite for new auto and personal loans has grown at a faster rate than Gen X borrowers at the same age points.
“Younger consumers present substantial growth opportunities for lenders during their lifecycle, and it’s imperative to understand their credit preferences now to build strong, long-lasting relationships going forward,” said Ezra Becker, senior vice president and head of TransUnion’s global research and consulting group. “Millennials, in particular, offer new challenges to lenders, as they are the first group to truly begin their adult lives in the digital age. While Gen Z consumers are only just beginning their credit journey, many Millennials are now reaching a stage of life where they will be making larger, more significant purchases.”
TransUnion’s study compared the Millennial (born 1980-1994) and Gen X (born 1965-1979) generations because they represent more than half of the overall buying power in the United States (as measured by income distribution). “Younger borrowers offer lenders more growth opportunities in the future, as the largest volume of loan originations occur the decade after consumers turn 40 years of age – a time when many consumers are near their peak earnings,” said Becker.
The study found that, in addition to carrying fewer credit cards than Gen X consumers, Millennials also are maintaining lower balances on those cards. TransUnion analysts believe that this is partly driven by the CARD Act of 2009, which limited the marketing of credit cards on college campuses. The increased use of debit cards also plays a role in this shift. The study pointed to recent Federal Reserve data, which found that debit card transactions grew from 8 billion in 2000 to 60 billion in 2015. In contrast, credit card transactions only increased from 16 billion to 34 billion in that same timeframe.
“While many Millennials still use credit cards, it’s understandable to see fewer 20-somethings today possessing and using credit cards when we take into account the regulatory environment, the popularity of debit cards, the ease of online loan origination, and other salient factors,” added Becker.
TransUnion’s study evaluated credit origination trends over twelve months (2015 for Millennials and 2001 for Gen X) for both generations at the same ages between 21 and 34. The study found that Millennials are opening new auto loans and personal loans at a higher rate. Millennials opened new auto loans between the ages 21-34 at a 21% higher rate than Gen X borrowers. Millennials also opened far more personal loans than Gen X – nearly double the rate.
|Millennials v. Gen X – Comparing Generations During the Same Age Period (21-34)|
|Credit Product||Origination Rate
(Gen X 21- 34)
(Millennials 21- 34)
|Percent Difference Between Millennial
Borrowers Opening Loans Between Ages
21-34 Compared to Gen X at the Same Age
|Auto Loans or Leases||12.09%||14.58%||+21%|
|Bank-Issued Credit Cards||25.07%||19.50%||-22%|
|Private Label Credit Cards||17.05%||15.28%||-10%|
“Our study clearly shows that Millennials exhibit different preferences for credit products than Gen X’ers did at the same age,” said Nidhi Verma, co-author of the study and vice president in TransUnion’s innovative solutions group. “While credit cards are not as popular with Millennials as they were with previous generations, purchasing or leasing an auto is clearly important to them. Digitalization allows consumers of all ages to more easily ‘shop around’ for vehicles, making the process less onerous. This is the market Millennials have grown up in, and the one in which they most naturally operate. In particular, the influx of FinTechs into the personal loan space appears to have resonated as an attractive lending channel for Millennials growing up in the digital age.”
Millennials and Mortgages
Among all major credit products, the mortgage market has been the slowest to recover from the Great Recession, with home ownership rates still below levels observed in 2009. Overall, homeownership is down 0.8% since the Recession, but this number grows to -1.6% for 35-44 year olds and -2.1% for those under 35.
As a result of credit access being limited and, per the U.S. Census Bureau, affordability being affected by income gaps between the two generations, TransUnion’s study found the percentage of Millennials opening mortgages between the ages of 21-34 (5%) is nearly half of the Gen X group (10%) when they were that age. TransUnion observed a smaller but still material gap (13% for Millennials vs. 16% for Gen X) within the Super Prime risk tier, suggesting that this dynamic is not driven solely by credit supply. “The mortgage market during most of the last five to seven years has been a difficult one for Millennials because of a challenging labor market for that age group, combined with stricter underwriting post-recession,” said Verma.
TransUnion’s study found that access to mortgages has declined dramatically for 21-34 year olds. In 2000, 39% of mortgage originations in this age range were comprised of non-prime borrowers. In 2016, non-prime borrower originations declined to 20%.
Further impacting mortgage originations to Millennials are lower income levels. Per the U.S. Census Bureau, median household income of consumers ages 25-34 declined from $60k in 2000 to $57k in 2015. The impact can be seen in the housing status of these consumers: a larger portion of younger adults ages 25-29 are living with their parents, rising from 15% in 2000 to 25% in 2014.
Despite these challenges, a TransUnion survey of 1,340 consumers in July 2017 found that nearly 75% of Millennials ages 23-37 said they plan on purchasing a home in the future. “Millennials clearly are interested in home ownership, and we think their appetite to secure a mortgage loan will increase as their incomes rise,” added Verma.
For more detailed information about TransUnion’s Millennial study, please visit our study landing page. Additional information on establishing a positive credit history can be found here. To view a video of the study findings, please click here.
About the TransUnion Millennial Study
TransUnion’s study was based on anonymized consumer credit data. The segments of Millennials and Generation X were created by looking at consumers age 21 to 34 for each generation. At the end of 2000, we found 36 million Gen X consumers in this age range. Comparatively, there were 60 million Millennials in this age group at the end of 2014. To measure the difference in credit participation, origination and performance, consumers were studied by age, VantageScore® 3.0 credit score risk tier and wallet profile for each generation.
Since there were more Millennials than Gen X consumers available for this study, and more Millennials were in the riskier credit tiers than Gen X, we controlled for both age and risk effects using a statistical methodology known as stratified random sampling.
- For each age group and credit tier, we sampled the Millennial population, so the number of consumers would be roughly equal to the Gen X population
- Each age group and credit tier represents the same proportion of the respective generation for both generations