Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Fair Isaac Corporation (FICO), Bank of America Corp (BAC): The Huge Mistake Millennials Are Making With Their Money

For decades, young adults have gotten themselves in trouble by maxing out their credit cards and digging themselves into a huge debt hole. Yet while millennials have developed what many believe is a healthy aversion to credit cards, their choice to give up on them entirely rather than using them prudently and responsibly will create its own problems.

A recent study from Fair Isaac Corporation (NYSE:FICO)‘s Fair Isaac Corporation (NYSE:FICO) took a look at the demographics of credit card use lately. What they found is that outstanding credit card debt among 18- to 29-year-olds dropped from just over $3,000 in late 2007 to a bit over $2,000 last October. That move comes as part of a broader reduction in overall indebtedness, with drops in outstanding mortgage, auto, and most other debt more than offsetting a substantial rise in student-loan debt. Even more surprisingly, the proportion of young adults going without credit cards entirely has risen to nearly one in six, almost double the level from late 2005.

Aren’t millennials being smart about credit cards?
Many consumer-finance experts are applauding the decisions of young adults to avoid credit cards, noting the effectiveness of regulations like the CARD Act that limited access to credit cards for those under 21. Moreover, using alternatives like electronic payments and debit cards can help people avoid spending beyond their means, as such payment methods are usually tied to accounts that need to have money present for transactions to get approved.

President Obama signing the CARD Act. Source: White House.

The fact that more young people have chosen not to carry balances and pay high interest rates for unnecessary loans is an unqualifiedly positive result. Yet not having credit cards at all is one step too far, as it prevents young adults from enjoying many benefits that credit cards have over alternatives:

  • Credit cards offer built-in protection from fraudulent charges, with a dispute mechanism allowing you to question charges on your account. The law limits your liability for credit card losses at $50 even if you don’t make a report until well after those charges are made. By contrast, the Electronic Fund Transfer Act sets a much higher liability limit of $500 if you don’t report a loss promptly after you find out about it, and you could be responsible for all the losses if you wait more than 60 days after a statement is sent. That’s at least one reason why major banks

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.