Do you remember the excitement you felt when your first ever credit card arrived in the mail? Chances are, your heart jumped as you felt the hard little rectangle inside the envelope, and perhaps you later stared at — and even caressed — the pristine plastic before turning it over and signing it. Getting your very own credit card was society’s way of saying you were an adult. It was a rite of passage, our equivalent of the cattle jumping ceremony practised by the Hamar tribe in Ethiopia.

Young desert credit cards

But that (the card receiving, not the cattle jumping) is something fewer and fewer young Americans are choosing to experience, according to new research from FICO, the company behind the most commonly used credit-scoring technology. True, in October 2012, only slightly fewer than 16 percent of those in the 18-29 age group had no credit card, but the trend is startling: that’s very nearly twice as many as seven years previously, in October 2005.

FICO’s data (which were published only in chart form, meaning the numbers read off are approximate) show a direct correlation between age and the likelihood of not having a credit card:

• 18-29 years: 16 percent
• 30-39 years: 8 percent
• 40-49 years: 5 percent
• 50-59 years: 4 percent
• 60+ years: 2 percent

Card issuers’ long term viability at stake

As importantly, those youngsters who still have cards are using their credit lines less. The average card debt for those aged 18-29 years in October 2012 was $2,087, compared with $3,073 five years earlier.

All of this must be causing sleepless nights for those who work in credit card companies’ marketing departments. The last thing most businesses want to see is a demographic profile that shows their most profitable customers dying off soon, while the ones with the potential to deliver profits for decades to come are shunning their products. Stand by for some aggressive innovation in this market. But what could tempt back the young?

Influences behind the trend

FICO speculated that two main influences might be behind the trend:

1. The Credit CARD Act of 2009 introduced new restrictions on the issuing of plastic to those under 21.
2. The recent recession has changed young people’s attitudes to credit, resulting in growing a preference for debit over credit cards.

While we hate to disagree with FICO’s experts, we suspect that the impact of the first was very limited for three reasons:

1. The trend was already well established before the CARD Act came into force.
2. The under-21s who were affected by the new regulations make up only a small proportion of the whole 18-29 age group.
3. As we’ve repeatedly highlighted (see, for example, Student credit cards effectively unregulated), card issuers have exploited loopholes in the legislation in a way that has effectively negated the relevant rules.

Student loan debt a big factor

Certainly, kids who watched their parents struggle with debt during the recession may have promised themselves they’d never get themselves into a similarly vulnerable financial position. Indeed, FICO’s figures show that the overall debt burden on those in this age range dropped to an average of $32,587 in October 2012 from $39,372 in October 2007.

But a breakdown of those numbers by types of debt reveals another factor that must surely influence youngsters: the huge increase in student loan debt. While all other forms of indebtedness within this age group fell over that five-year period, average student loan debt rocketed to $11,444 from $6,490. Nationally, the value of current student loans stands at over $1 trillion.

That’s spread across 37 million Americans, most of whom in previous generations would have been the prosperous graduates who drove the real-estate and new-car markets. But all that’s changed. Research published in June by the One Wisconsin Institute and ProgressNow Education found that, regardless of household income, home ownership was 36.1 percentage points higher among those who’d finished paying off their student loans — a process that on average took 21.1 years. Meanwhile, those still paying were so much more likely to buy used vehicles that researchers estimated these loans could be costing the American economy $6.4 billion a year in new-car sales. If millions of people are being forced to change their home- and car-buying habits, isn’t it likely that student loan debt is also impacting the credit card market?

If that’s the case, card issuers face serious challenges. Coming up with slightly more generous rewards credit cards or a bit less onerous fee structures is unlikely to cut it. If they’re not careful, kids really could consign credit cards — at least as we know them — to history.

Published 07/08/13 (Modified 02/03/23)