Facing a double-whammy, millennials rack up credit card debt during the pandemic
The pandemic’s economic hit is making an outsize impact on one generation’s debt: A greater share of millennials report they have added to their credit card debt since March compared with older generations.
About 56% of millennials say their credit card debt has grown since the start of the pandemic, compared with 53% of Generation Xers and 46% of baby boomers, according to a new survey from CreditCards.com. About 55% of millennials blamed the crisis for their snowballing balances, while fewer than half of Gen Xers and baby boomers pointed to the pandemic as the cause of their growing debt, according to the survey of 2,475 adults in mid-December.
The reason isn’t due to poor spending decisions but more likely stems from the pandemic’s greater financial impact on millennials compared with older generations, says Ted Rossman, CreditCards.com industry analyst. Millennials suffered a double-whammy: The generation trailed in wealth creation in the years before the pandemic, and roughly 6 in 10 say they or a household member lost income from mid-March through mid-December, according to census data.
Worried about your financial security? Here’s how to cope with a job loss spurred by COVID-19
Coronavirus aid checks and taxes: What you need to know before filing your 2020 income tax returns
By comparison, 5 in 10 people ages 55 to 64 say they lost income during that same period, census data found.
“It really comes back to those two big factors: Millennials are the most likely to have had their income compromised and least likely to have adequate emergency savings,” Rossman says.
In the years leading up to the pandemic, the millennial generation fell behind by the yardsticks often used to measure economic progress, such as homeownership and wealth. That placed many of them in a more vulnerable financial position when the pandemic hit.
Millennial education divide
Though the generation as a whole has trailed older Americans in building wealth, there is a divide between millennials with and without college degrees. A Federal Reserve of St. Louis study found that college-educated millennials had about 6% less wealth than older generations at the same age, but those who had only high school degrees had 44% less wealth.
The pandemic has caused what some economists describe as a K-shaped recovery, in which wealthier professionals continue to work remotely while lower-paid workers in service jobs suffer higher rates of unemployment.
That may explain somewhat conflicting credit card trends, Rossman says. Even though his company’s survey found 51% of Americans overall say they have added to their credit card debt since the pandemic began, the nation’s total credit card debt and delinquencies declined, Rossman says.
“Higher-income folks have saved a lot because they are commuting less, going out to eat less – they can bank those savings,” Rossman says. “People in lower-income jobs, more service-oriented jobs, those are the people that are struggling the most and least equipped to handle a crisis like this.”
Hand sanitizer warning: FDA issues alert about methanol-contaminated hand sanitizer imported from Mexico
The two rounds of relief checks Congress approved helped many households weather the pandemic. Without that aid, it’s likely that even more Americans would have accrued new credit card debt, Rossman says.
Unfortunately, it’s harder to secure a balance-transfer credit card than it was before the pandemic as credit card companies have tightened their standards, Rossman says. His advice to consumers who want to pare their debt: Consider transferring debt to a lower interest-rate personal loan, or work with a nonprofit credit counselor to develop strategies to pay off debt.
“They can help you negotiate a lower rate and hold your hand through the consolidation process,” he says.
Aimee Picchi is a business journalist whose work appears in publications including USA TODAY, CBS News and Consumer Reports. She spent almost a decade covering tech and media for Bloomberg News.
This article originally appeared on USA TODAY: Credit cards: Debt grows for millennials during COVID pandemic
