Much has been written about the differences between Baby Boomers and Millennials in the workplace. However, a recent study[i] conducted by loanDepot LLC shows major differences in how each generation approaches credit management, revealing what some might call The Great Credit Divide.
“Millennials have faced a far more challenging financial environment compared to that of previous generations, marked by record student loan debt, lower income levels and a tough job market,” says loanDepot Chairman and CEO Anthony Hsieh. “While it’ll still be important for this generation to learn to manage credit successfully, there is no denying that as Millennials take the lead in driving the economy, having access to new and emerging technology-enabled financial solutions will be critical for lenders in serving this evolving population.”
So how “great” is the potential generational credit divide? Let’s break it down:
Millennials, in general, place a lower value and priority on their credit score, with 59% of Millennials saying that maintaining a good credit score is very important, compared to 73% of Boomers.
In fact, less than half (48%) of Millennials are even aware of their credit score, as compared to 60% of Boomers.
When it comes to credit management, just over a third (37%) of Millennials think they do a great job in managing their credit, as compared to 53% of Boomers.
When it comes to managing their finances, 31% of Millennials say living within a budget and not going too far into debt were their top priorities, compared to 21% of Boomers.
Not surprisingly, each generation also has a different perspective on how they spend and borrow. For example, nearly a quarter (23%) of Millennials surveyed would consolidate their credit card debt so that they could spend more, while only 12% of Boomers would do the same. Millennials also are more than twice as likely than Boomers to take out a personal loan to finance a wedding or a vacation, 29 percent compared to 13 percent respectively.
Each generation also takes a different approach to credit management. Almost one in five Boomers surveyed (18%) prefer to use traditional resources, such as financial advisors, while 34% of Millennials are more likely to turn to friends and family compared to 17% of Boomers for insight.
Millennials also are more open to online nonbank lenders than Boomers. While both groups have low awareness of online lending options, 8 out of 10 Millennials (80%) who are familiar with nonbank lenders want the convenience of being able to shop for financial services online, compared to 62% of boomers.
“As Millennials move further into adulthood, we can expect to see a higher priority placed on credit management to achieve life goals such as homeownership,” said Hsieh. “As this occurs, we’ll see a greater volume of online financial services emerging and better borrowing options for first-time home buyers by tech-enabled marketplace lenders like loanDepot who value this emerging generation and understand their needs, styles and preferences.”
[i] Study conducted by OMNIWEB using the KnowledgePanel™ in a national online omnibus service of GfK Custom Research North America. The KnowledgePanel™ is the only commercially available online probability panel in the marketplace making the sample truly projectable to the US population, which sets it apart from traditional “opt-in” or “convenience” panels. The survey is based on interviews conducted from August 21 – 24, 2015. A total of 1,097 interviews were completed, with 585 Millennials and 512 Baby Boomers. The margin of error on weighted data is +/- 4.4 percent.