Millennials With Money:’ How Younger Consumers are Managing Their Finances

The Federal Reserve Bank of Philadelphia has new research that shows more Millennials with high incomes are using alternative financial services in addition to traditional bank products.

Millennials with high incomes, or consumers ages 18 to 32 who earn $100,000 or more each year, are increasing their use of general purpose reloadable (GPR) prepaid cards while continuing to use traditional banking products such as debit cards and checking accounts for their finances, according to new research from the Federal Reserve Bank of Philadelphia.

Sixty percent of high-income Millennials reported having a GPR card in 2014, compared to 49 percent in 2013, according to the “Millennials with Money: A New Look at Who Uses GPR Prepaid Cards,” report.

Researchers Susan Herbst-Murphy from the Philadelphia Fed and Greg Weed from Phoenix Marketing International released the report based on findings from the Phoenix Consumer Payments Monitor survey of more than 4,000 consumers on their age, income, geography, and use of financial products, including GPR cards.

“Among the research findings included in the paper was the discovery of a ’power user’ group of young, banked, middle- to upper-income general purpose reloadable (GPR) prepaid cardholders who were challenging certain preconceptions of GPR prepaid cards as a product for low-income and unbanked consumers,” according to Herbst-Murphy and Weed.

Overall, 25 percent of households used GPR cards in 2013 and 2014 and overall ownership rates did not increase as much as they had between 2012 and 2013 (4 percent.)However, the researchers found that there was a jump from 49 percent of Millennials with household incomes of $100,000 or more and GPR cards in 2013 to 60 percent with GPR cards in 2014.

The researchers found that “two other segments—Generation X with household incomes of $50,000 to $99,900 and those ages 68 and older—were the only other groups to own GPR cards in 2014 at proportionately higher rates than in 2013.”

The researchers further cautioned that looking at income alone relative to ownership of GPR cards does not reveal significant changes.

“For example, 45 percent of Millennials owned GPR cards in both 2013 and 2014. Income by itself is likewise unremarkable: 28 percent of households with annual incomes under $25,000 owned GPR cards in both years. It is only when income and age are combined that notable year-over-year differences among segments emerge from the findings,” according to the report.

In 2013 and 2014, 71 percent of consumers who owned GPR cards were younger than 49.

Millennials’ Banking and Budgeting

Participants in the 2014 Consumer Payments Monitor Survey were asked where they use their GPR cards. “The most common usage was the physical point of sale, noted by 70 percent of respondents, with 69 percent using their GPR cards to shop online and 40 percent to pay bills. These statistics suggest that the majority of GPR cardholders use their cards much in the way that other payment methods are used. GPR cards are also used for purposes other than payments: 22 percent use them to conduct electronic transfers to/from another person, and 18 percent use their GPR cards to keep money in reserve for later use,” according to the report.

The report and survey results present the question of whether Millennials are using GPR cards as a banking product or budgeting tool.

A majority of GPR cardholders surveyed in 2013 and 2014 also had checking accounts, debit cards and credit or charge cards.

The researchers also identify “hybrid” consumers of financial services who combine traditional banking services with new, alternative options for spending and managing their money.

Of the more than 4,000 respondents in the Consumer Payments Monitor survey, 927 people reported using alternative financial services when asked, “In the past year, have you (or anyone in your household) used a non-bank company or service to make financial transactions or obtain loans? Examples include: check-cashing and money order services, paying bills, send/receive money electronically, payday loans, pawnshops, rent-to-own services or tax refund anticipation loans.”

The findings incicate that 60 percent of Millennials earning $100,000 or more use both alternative financial services and GPR cards. “Millennials with lower incomes use [alternative financial services] at lower rates than their higher-income generational peers but at appreciably higher rates than consumers of the Baby Boom and older generations. The two generations that comprise adults from the ages of 18 through 48 (Millennial and Generation X,) use AFS at above average rates across all income groups. Consumers ages 49 and older (Baby Boomers and older) use AFS at rates that are below the overall average,” according to the report.

Consumers with a bank account will use AFS if they are more convenient, faster or cheaper even when banking services are available.

The researchers conclude that Millennials use many options when it comes to their banking needs and budgeting. “The openness of new and alternative financial services among young adults does not appear to be associated with rejection or more traditional bank products,” according to the report. “Rather, young adults seem to be combining the traditional and the new, the mainstream and the alternative.”

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