Is the phrase Millenials Financial Literacy an oxymoron?
It was a little over a month and a half ago that we learned that millennials were swayed by tweets, selfies and social media interaction to make their banking choices. Now a new survey notes that a large percentage, 41%, think using a credit card is a “scary thing” while 6% think a late payment will help their credit score.
Millenials Financial Literacy is “alarming” says university professor
Every three years, the Programme for International Student Assessment (PISA) does a financial literacy assessment. The most recent study released in May was “disturbing,” according to Annamaria Lusardi, a professor at the George Washington University School of Business, where she focuses on financial literacy, personal finance, and macroeconomics.
Looking at a slight decline in Millenials Financial Literacy from the previous study, Lusardi notes that “this inertia is alarming,” particularly as student loan debt has ballooned to $1.4 trillion. “If anything, American teenagers’ need for financial knowledge has grown more urgent over the past three years.”
Enter a study from LendEdu, which shows that those new to credit usage might benefit from reading the operating manual before diving into debt.
Nearly half of millennials don’t know their credit card interest rate, but most are responsible
The LendEdu study noted that 45% of millennials didn’t know the interest rate they pay on credit cards while nearly half, 48%, say they keep a balance on their credit card each month rather than pay it off.
Mike Brown, who reviewed the findings of 500 survey respondents, noted that 30% use credit cards for monthly rent and other living expenses. “Most financial experts argue that credit cards should not be used for serious (and hefty) expenses such as monthly rent and bills,” he wrote.
While credit card usage and debt levels might not be exactly those prescribed by financial advisors, a certain number of millennials might have too many cards. A small percentage, 7%, have five or more credit cards, with 5% sporting four cards, 12% with three cards.
“One credit card is great, two is fine, three is acceptable, and anything more than four is arguably too many for a young adult,” Brown advises.
While there are actually logical reasons for millennials to consider a bank’s social media responsiveness in making a bank decision – this is how they prefer to communicate – logic seems to reign among the majority of millennials.
“Overall, millennials have a great grasp in terms of why they should have a credit card,” Brown wrote. “The absolute majority of respondents, 69.40 percent, said they took out a credit card in order to build a credit history. This is an excellent reason to have a credit card; you can never be too young to start building credit.”