Millennials have very different spending habits than their parents

Photo: Theo Wargo/ Getty Images for Firefly.
  • Millennials are using less credit than their parents did when they were younger, according to TransUnion.
  • But two categories are different: personal and auto loans.
  • Millennials don’t have vastly different needs than the similarly aged generation before them, but the technologies available today offer a huge opportunity to lenders.

Millennials are using credit quite differently than how the generation directly ahead of them did.

A new TransUnion study shows that the 21-to-34-year-old age group is opening more new auto and personal loans than Generation X (people born between 1965 and 1979).

For the study, TransUnion compared the borrowing habits of Gen Xers of all ages throughout 2001 — when they would have been millennials — and present-day millennials throughout 2015.

It found that the differences aren’t because millennials have different desires than their parents. It’s more because of the kind of products available, and if anything, helps to dispel some myths about how unique millennials today are.

For example, the fintech lenders granting personal loans didn’t exist 20 years ago, said Ezra Becker, the senior vice president of research and consulting at TransUnion.

“Banks and traditional lenders definitely offered personal loans, but they didn’t aggressively market them,” he told Business Insider. “They more aggressively marketed their credit cards and loans and mortgages. Personal finance loans were tied to furniture or other types of retail finance.”

Online lending firms like SoFi and Prosper also benefit from the first generation that grew up on the internet.

“Even if you got approved, it might take several days to be funded,” Becker said about personal loans. “In contrast, you can get funded the same day or next. And if you get rejected, there’s nobody looking at you, judging you.”

Millennials are carrying two fewer bank cards and private-lable cards than Gen X, TransUnion found.

One potentially worrying trend is that many more subprime millennials are missing payments on personal loans than on bank cards, auto loans, and mortgages. Millennials with weak credit scores are ahead of Gen X by 12.4% in their delinquency rates on personal loans, compared to a 1.8% gap on late car payments.

While there’s no clear-cut reason why, Becker suggested that some younger lending companies need time to mature and learn how to evaluate their customers’ risk.

Millennials are also taking out more loans for cars and trucks than Gen X.

“It doesn’t mean consumers want cars more or less than they used to,” Becker said. “Unless you live downtown or in Manhattan, it’s kind of inefficient to not have a car.” Simply put, millennials do have a lot in common with their parents.

Their higher use of auto loans is partly because lenders have stretched out the term of payments to as long as six or seven years, making it cheaper to borrow on a monthly basis.

It’s worth noting that borrowing costs were higher in 2001 compared to 2015, when TransUnion looked into millennials’ habits.

The research also confirmed that millennials are taking out fewer mortgages than their parents, amid an overall decline in homeownership and the lingering effects of the recession. Also, student debt is at a record high.

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