It’s no surprise that millennials appear to be adopting new technology faster than any other generation -- they grew up with these innovations, after all. However, despite their ability to adapt quickly to new technologies, they are not so quick to adopt and use a key financial tool: that shiny piece of plastic. In fact, a Bankrate study found that a whopping 63 percent of millennials (ages 18-29) are not using credit cards at all. But because 90 percent of top lenders use a FICO score when making a decision, it’s important for millennials to understand the benefits of using a credit card, and how it could impact their financial future.

LendUp Millennial Credit Interviews

LendUp incentivizes its customers to complete free, online education courses. Customers earn points after each successful course completion. This allows customers in eligible states to move up our LendUp Ladder more quickly, to access higher amounts at lower rates. After completing these courses, many of our customers shared that they wished they’d had this information at an earlier age because it could’ve helped them better consider financial options and plan for the future.

Based on this feedback, we decided to gather qualitative research through in-person surveys to learn what the millennial generation understands about credit and the way it impacts their lives.

We broke the groups into two demographics: those still in high school, and those who were undergraduate college students. We interviewed participants on the topic of credit and asked them open-ended questions like, “What does the word, ‘credit’ mean to you?” Then we followed up with questions about whether they had a credit card and what their plans were for their financial future.

Our Interview Findings

We had a small sample size of 42 participants, which may not have been representative of the millennial population as a whole, but our results align closely with the Bankrate study referenced earlier.

Some of the most interesting takeaways:

  • Very few participants knew how credit, or a credit card, contributes to a credit history and score
  • The majority thought that a debit card (or a bank check card) was the same thing as a credit card
  • Many did not understand how credit-building products can affect their financial future
  • Almost all students said they anticipated “big ticket” expenses in the future, such as buying a house or a car or paying for school. These are serious financial commitments that require a lot of capital or access to a line of credit.
  • Some stated that they thought they had a good understanding of credit, but were unsure how it affected their lives. Others were less certain about credit in general. One student shared, “What's credit? Well I think of it in terms of extra credit for school, so I assume it's something extra you get."

We believe these results indicate the next generation of consumers needs to build financial capability. And existing research agrees.

According to the FINRA Foundation’s Financial Capability Insights, The Financial Capability of Young Adults: A Generational View, 23 percent of millennials spend more than their income, and 31 percent have unpaid medical debts. And results from the National Financial Educators Council, which tested thousands of people across the nation to measure their ability to earn, save and grow their money, were no less startling. Young adults ages 19-24 scored an average of 67 percent, whereas those between 25-35 scored only slightly higher (71 percent). This knowledge improves with age, but not by much -- adults 50+ scored an average of just 75 percent.

Bottom line: We need to make sure we’re building good financial habits at a young age.

Financial Health for the Millennial Generation

Of the students we spoke with, most did not separate the term “credit” from credit cards. While a credit card is a revolving line of credit, it was interesting to note this lack of distinction.

The ability to take out a loan (another line of credit) to pay for big-ticket items is dependent on one’s credit history. Without a positive history of on-time payments, or a history built over several years, financial opportunities may be limited.

And if you're a student, we get it. You may be busy wrapping up your fall semester and prepping for finals, but it’s important to think about what’s next. Whether you’re an undergrad, a trade student or even a working professional already, you should evaluate your current debt and consider how credit can affect your future goals.

Here at LendUp, we hope our free online tips and education courses will serve as a starting point for many millennials. You don’t even have to be a LendUp customer to benefit from them! Check out our latest education courses here.

Dani Bicknell is a LendUp alum and a long-time champion of financial education. She is currently working at the UNESCO headquarters, focusing on financial empowerment for underserved and marginalized communities.