Zydonik 1

Zachary Zydonik
Professor Lori Bedell
CAS 137H
29 October 2015
Downsizing the Credit Card
President Franklin D. Roosevelt addressed the nation in his inaugural speech with the
memorable line: The only thing we have to fear is fear itself. In including this line, Roosevelt
stressed to the citizens of his great nation that they not be afraid to invest their money and have
trust in the nations financial institutions. Decades have passed since he addressed the nation, but
the idea of spending money has been everlasting. Americans became so eager to spend money
that they developed a revolutionary way to spend money before it even hit their wallets. A major
enforcer of the trend of having now and paying later is the credit card. Credit cards, once viewed
as a plastic square of opportunity and unlimited value, have lost economic value in the eyes of
millennials over the past decade, due to contributing factors including the Great Recession, rising
student debt and other economic downturns.
The credit card has not always been associated purely with the image of debt. The idea of
credit became a common practice in old general stores when farming was a main driver of the
economy. This open book credit system worked in a way that the owner of the store would
keep a tab of what farmers owed. After the harvest season, when the farmer had the money to
pay back his debt, the merchant would expect to be paid. As the economy grew and urbanization
occurred, department stores adopted the same policy, but implemented the use of a card, specific
to their store, to track what each customer owed. The Diners Club Card was the first to act as an
alternative method of payment to cash and checks that could be used at a number of stores. It

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was not until the 1950s that banks began issuing the credit cards that we are familiar with today,
such as Visa and MasterCard. Credit cards were not an instant success due to tight regulations by
the government. At the time, laws imposed a cap on interest rates that banks could charge,
making it ineffective for banks to loan money to people in other states. Only after deregulation
did credit cards take off. The Marquette National Bank of Minneapolis v. First of Omaha Service
Corp. Supreme Court case in 1978 created a new policy, under which national banks were able to
charge uniform interest rates based on the banks home state to customers around the country.
Naturally, banks rushed to states that had no interest rate cap, allowing them to charge any rate
they deemed fit. This change in policy resulted in the expansion of credit as reported by
Bankrate. With declining interest rates, consumers of the 1980s started spending more. An
economist and the author of "Paying with Plastic: The Digital Revolution in Buying and
Borrowing," David S. Evans commented on the era, stating, "Everyone was feeling optimistic
and engaging in a lot of borrowing. The economic prosperity in the 1980s combined with new
reward programs that grabbed the attention of even more customers, allowed credit cards to grow
uncontrollably (Steiner). Credit cards became more of a convenience than a luxury. The piling
debt was bound to associate a negative connotation with credit cards.
The Great Recession was the strongest driver in reducing the popularity of the credit card
among millennials. The leader of the Consumer Financial Protection Bureau, Richard Cordray,
notes, "Coming out of the financial crisis, consumers have been more responsible about thinking
about how to approach their credit card debt" (Capelouto). Consumers are keeping a closer eye
on their expenditures compared to their income in the hope of avoiding the amount of debt
accumulated before and during the Great Recession. A recent survey by Bankrate confirms
millennials disinterest with credit cards in response to the Great Recession, reporting that 63%

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currently have no credit card, while a much lesser, 35% of those 30 and over do not own a credit
card (Ashford). There are various reasons why millennials are taking a more cautious approach
to their credit card debt, as Cordray observed. The scarcity of jobs due to the Great Recession
played a major factor. The Economic Policy Institute reports that wages fell for the entire
bottom 70 percent of the wage distribution (Mishel and Shierholz). Combined with a shortage
of jobs, millennials simply are not capable of paying off credit card debt, so it makes sense that
they would attempt to avoid accumulating the debt in the first place. Forbes magazine confirms
this, revealing that Only 40% of Millennials pay their credit card balances in full each month,
compared to 53% of adults 30 and over, according to the same Bankrate survey. This group is
also most likely to miss payments (Ashford). The state of the economy resulted in the avoidance
of credit cards by millennials. Without money to make payments, millennials were simply
incapable of having credit cards.
Millennials are moving away from credit cards, because they are very anti-debt. The
credit card acts as a relatively unlimited source of money, which can be tapped into when current
income is less than expenditures. Millennials are adopting the idea of not spending money they
do not have, and therefore leaning away from getting a credit card. The recent changes in
behaviors of millennials illustrates their caution with accumulating debt. An example of
changing behavior as a result of millennials desire to reduce debt is the increase in college
students deciding to live at home. Forbes Magazine confirms this change in behavior, reporting
that 54% of students chose to live at home in 2014 compared to 43% in 2010 (Ashford). These
students are choosing to stay at home rather than live in a pricy dorm room, in an attempt to
weaken the burden of their student debt. Many millennials already have a large amount of
student debt and therefore do not want to accumulate credit card payments on top of what they

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already owe. The idea of cutting expenditures in an attempt to control debt is demonstrated in
national sales growth. The National Retail Federation lowered its forecast in sales growth from
4.1% to 3.5%, reflecting the reduction of expenditures (Capelouto). As millennials reduce their
spending, as reflected in the sales growth figure, they are less likely to obtain a credit card. After
all, the credit cards main purpose is to make purchases, and without making purchases the card
would lose its purposefulness.
The government is a contributor to the diminishing amount of credit cards among
Millennials. It was the deregulation by the government that allowed credit cards to gain a
stronghold in the consumer market, therefore it makes sense that government is also responsible
for limiting their distribution, which consequently reduced their popularity. In response to the
Great Recession, the government amended the Credit Card Act of 2009, which provided
regulation to control the credit problem facing the nation. The new laws under the act made it
harder for those under 21 years to obtain a credit card, and it prohibited financial institutions to
market to college students without certain measures (Ashford). The credit card, which was once
easily marketed and available to anyone, transformed from a convenience back to a luxury,
whose availability diminished among younger generations, including millennials. By making the
credit card more difficult for millennials to obtain, the government effectively decreased their
use and popularity.
Millennials are finding other sources of payment more appropriate and just as convenient
as credit cards. Since alternatives exist to the debt-piling credit cards, it makes sense that
consumers are turning to them with at a rapid pace. There is less of an immediate incentive, as
noted by Forbes Magazine, to sign up for a credit card because there already exists a convenient
form of payment. The debit card is one such alternative forms of payment. The millennial

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generation is the first to have access to the debit card (Ashford). This plastic alternative that
resembles the texture and payment process similar to a credit card, makes the credit card no more
convenient than the debit card. Paying with cash is increasingly becoming a popular form of
payment as well. For millennials, who avoid racking up debt, cash acts as a safe alternative to
credit cards. Making purchases with the physical dollar in hand makes consumers spend less.
(Ashford). When the money being spent is out of sight and is simply transferred from one
account to the next when using a card, it becomes increasingly easier to lose track of funds and
spend more. Competing forms of payment have made the benefit of convenience associated with
credit cards outdated.
The opportunities for millennials to establish good credit are also growing, making the
necessity of having a credit card to establish credit disappear. Much of the millennial generation
is buried under federal student loans, which may actually help build credit without the use of a
credit card. Paying off student loans, if done in the timely fashion agreed upon and in full, can
improve credit (Detweiler). These payments are recorded by the credit bureaus and therefore are
efficient in improving credit scores. Because so many millennials have a large sum of student
debt to pay off, the loans may act as a great way to avoid building credit. Forbes Magazine
magnified the case of Kreigh Knerr, who has never had a credit card, but has outstanding credit
and was able to finance his first car (Ashford). Kreigh Knerr is one of many that have a good
credit score, but avoided getting tangled in the schemes of credit card companies. There are still
other alternatives to building credit without the use of a credit card. Some of these alternatives
include credit-builder loans, passbook or CD loans, personal loans, as well as paying rent on time
(Detweiler). Millennials are identifying these methods of establishing credit, therefore the credit
card is depreciating in value given their current economic standing.

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A major cultural change within the United States has reduced the necessity of
credit cards in the average Americans lifestyle. In recent years, the ideal American dream has
morphed from the traditional two car garage and white picket fence to the desire of attaining
financial stability. The result: Americans are downsizing and credit cards are less useful in
attaining redefined ambitions common to the nation. Polls collected by Pew noted that between
1986 and 2011, the number of people that felt the American Dream was very alive decreased
by approximately half, and those that felt it was not really alive doubled (Cooper). Americans
are recognizing the impracticality of the classic American Dream and are redefining the idea to
match the current fiscal situation. The Great Recession was a major contributor to this cultural
shift. As reported by The Atlantic, the era of economic instability made furthering education, and
finding a well-paying job next to impossible for many (Cooper). The American Dream became
simply that: a dream. A survey conducted by Fannie Mae confirms the shift away from the desire
to own a house, which is a common postulate of the classical American Dream. The survey
reported that 60% of Americans, if forced to move to a new location, would buy a house. This is
the lowest number of homebuyers recorded in the surveys history (Cooper). The lack of jobs and
decreased earnings contribute to the shift away from owning a home. The Bureau of Labor
Statistics, a branch of the U.S. Department of Labor, revealed in the month of September 2015
that the number of Americans working a part time job, but desire to work more is up to 6.5
million. The same report identified 1.8 million people that have not searched for work, also
indicating that 35% of these people believe there are no jobs in the economy (The
Employment). Job availability plummeted in the past decade and the decrease in the use of
credit cards coincided with the rapid decline of disposable income. Not only do the American
Dreamers have less money to spend, but they wanted to spend it wisely, especially in an unstable

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financial time. Stuart Vyse explained the correlation between increased credit card use and an
unstable financial situation, specifically bankruptcy, in his book, Going Broke. Vyse identified
that bankruptcies had always been lower [in Canada] than in the United States, but following
the introduction of bank credit cards [to Canada] they began a gradual increase, eventually rising
to rates equal to that of the United States in 1978 (Vyse). With the correlation between
bankruptcies and credit cards established, it makes sense that millennials with the desire of
financial stability, would avoid their use. Another study conducted by Pew demonstrates
millennials tendency to redefine the American Dream, reporting in 2015 that when asked which
they would preferfinancial security or moving up the income ladder92 percent selected
security. This is a seven percentage point increase since just 2011, when 85 percent selected
security over economic mobility (Pew Survey). To further identify the downsizing of the
American Dream, Allstate/National Journal found in a poll that the definition of the middle class,
is changing. The poll revealed that 54 percent defined the middle class as having the ability to
keep up with expenses and hold a steady job while not falling behind or taking on too much
debt, while 43 percent responded with having a higher income, buying a home, and attaining a
large savings account (Heartland). The actual contribution of the middle class to the economy,
as reported by Yahoo News, supports the redefining of the social class as one of stability rather
than having great financial funds. Middle class contributions to the economy have dropped 17
percent since the 1970s, carrying only 45 percent of the national income today. The Great
Recession, which replaced a large majority of middle class jobs with low-paying jobs is partly
responsible for this decrease (Sullivan). Credit card companies thrive off of the purchases of bigticket items made on credit cards, which are commonly purchased by middle-income families.

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As millennials reduce their expenditures on these items due to the downsizing of the American
Dream, the credit card becomes less valuable in the eyes of the consumer.
Credit cards have lost their appeal in the eyes of consumers chiefly due to the fiscal state
of the economy. The Great Recession, new laws governing credit cards, an adopted mentality of
an anti-debt/financially secure lifestyle, and the downsizing of the American Dream led
millennials away from stacking up credit card debt. Equally convenient methods of payment and
increased opportunity to develop good credit have also played major roles in creating a negative
connotation with the credit card. Although the revolutionized form of payment will never
disappear from society, its role in the economic status of the nation will continually change and
refine to match the attitude of current consumers. However, as President Roosevelt rolls over in
his grave, millennials have shown in the current economy that the only thing to fear is credit card
debt itself.

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Works Cited
Ashford, Kate. "Why Millennials Are Rejecting Credit Cards." Forbes. Forbes Magazine, 9 Sept.
2014. Web. 29 Oct. 2015.
<http://www.forbes.com/sites/kateashford/2014/09/09/millennials-reject-credit-cards/>.
Capelouto, Susanna. "Watchdog: Consumers 'More Responsible' With Credit Card Debt." NPR.
NPR, 10 Aug. 2015. Web. 29 Oct. 2015.
<http://www.npr.org/2015/08/10/429645754/watchdog-consumers-more-responsiblewith-credit-card-debt>.
Cooper, Marianne. "The Downsizing of the American Dream." The Atlantic. Atlantic Media
Company, 02 Oct. 2015. Web. 29 Oct. 2015.
<http://www.theatlantic.com/business/archive/2015/10/american-dreams/408535/>.
Detweiler, Gerri. "7 Ways to Build Credit without a Credit Card." CBSNews. CBS Interactive, 7
Aug. 2015. Web. 29 Oct. 2015. <http://www.cbsnews.com/media/7-ways-to-build-creditwithout-a-credit-card/4/>.
"The Employment Situation." News Release (2015): 1-38. U.S. Department of Labor. Bureau of
Labor Statistics, 2 Oct. 2015. Web. 2 Nov. 2015.
<http://www.bls.gov/news.release/pdf/empsit.pdf>.
"Heartland Monitor Poll XVI." National Journal Heartland Monitor Poll (2013): 1-24.
Allstate/National Journal. Allstate, 9 Apr. 2013. Web. 2 Nov. 2015.
<http://syndication.nationaljournal.com/communications/ASNJ%20Heartland
%20Monitor%20XVI%20Topline%20Results.pdf>.

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Mishel, Lawrence, and Heidi Shierholz. "A Decade of Flat Wages." EPI Briefing Paper (2013):
1-18. EPI Briefing Paper. Economic Policy Institute, 21 Aug. 2013. Web. 29 Oct. 2015.
<http://s1.epi.org/files/2013/BP365.pdf>.
"Pew Survey Shows Americans' Financial Worries Cloud Optimism." The Pew Charitable
Trusts. The Pew Charitable Trusts, 5 Mar. 2015. Web. 29 Oct. 2015.
<http://www.pewtrusts.org/en/about/news-room/press-releases/2015/02/26/pew-surveyshows-americans-financial-worries-cloud-optimism>.
Steiner, Sheyna. "The Evolution of Credit Cards." The Evolution of Credit Cards. Bankrate,
2015. Web. 29 Oct. 2015. <http://www.bankrate.com/finance/financial-literacy/theevolution-of-credit-cards-1.aspx>.
Sullivan, Amy. "The American Dream, Downsized." Yahoo! News. Yahoo!, 26 Apr. 2013. Web.
29 Oct. 2015. <http://news.yahoo.com/american-dream-downsized-202010284-politics.html>.
Vyse, Stuart A. Going Broke: Why Americans Can't Hold on to Their Money. Oxford: Oxford
UP, 2008. Print.