Why are Millennials Prepaid Credit Cards Usage on the Rise?

Personal Finance / Wednesday, March 28th, 2018

Over the last few years, prepaid credit cards have become standard among millennials. We’ll be exploring why that’s the case.

We live in a day and age where hundreds of payment methods are available. Debit cards, credits cards, Venmo, PayPal, even cryptocurrencies – theres’s no shortage of options. But over the last decade or so, we’ve seen an adaption of another method on the rise: prepaid credit cards. They are also known as general purpose reloadable (GPR) cards .

Even though prepaid credit cards somewhat mirror the functionality of a regular credit card, millennials particularly have taken a keen interest in them. Their usage has been widely adopted by the age group. Regardless of their income, financial background, and the types of accounts they already have, the majority of millennials are attracted to the concept of a prepaid credit card. This is whereas older generations aren’t as much. So, what is the reasoning behind this?

Regular Credit Card or Prepaid Credit Card?

Although they’re both similar, they’re also very different.

Starting with the regular credit card: you can spend money that doesn’t belong to you. At the end of each month, you’ll be sent a bill from the credit card company prompting you to pay for each of the purchases that were made with the card that month. On the other hand, prepaid credit cards are similar to debit cards in the sense that you can only spend money that belongs to you. This is a huge biggie for those who are wary about getting into debt, or more debt!

Now, we could simply say that it comes down to preference and convenience. We’re not denying that those don’t factor into the decision., However, there has to be a deeper reason as to why prepaid credit cards are mostly used by millennials?

How Does Prepaid Credit Card Usage Vary Per Age Group?

If we refer to a publication released by the Federal Reserve in 2015 (titled “Millennials with Money Revisited”), we can clearly see from Figure 1 that prepaid credit card usage grew more popular between the years in question.

statistics on millennials prepaid card usage

Let’s first focus on the millennial section of 2013 vs 2014 graph. Low incomes earners ($50k or less) dropped 2% in just a year. Middle earners (between $50k and $99.9k) maintained the same usage, and high incomes earners (over $100k) increased by a huge 11%.

Taking into account that credit cards are commonly associated with the middle and upper classes, these statistics can cause even more confusion than before. As a result of having more flexibility over their money, having a regular credit card is more convenient. So why are high-income households taking such a liking to prepaid credit cards? Wouldn’t this cause more of an inconvenience?

If we move further along the chart, we can see that Generation X’s from high-income households aren’t as intrigued by prepaid credit cards. It drops off from 42% to 35% in just a year. This goes to show how the usage of prepaid credit cards is mostly among millennials. The popularity is puzzling given the options available to the income group and their technological access.

Lastly, if we look at the “Baby Boomers” and older generations, these households have a lot lower percentile. Both of which are less than 20%, it’s safe to say that millennials are the targeted audience of prepaid credit cards.

Why Do Millennials Prefer Prepaid Credit Cards?

We can safely assume that a millennials financial background plays little (or no) role in the preference of prepaid credit cards. So that bids the question, what is it that makes prepaid credit cards so appealing to millennials? There are a few things that we believe make them preferable.

Controlled Spending

Society (more specifically, millennials) have become more financially aware of the risks of having a credit card. While they can be convenient, spending money that you don’t have can lead to unsustainable debts, rising interest, and an overwhelmingly stressful financial situation. With student loans burden to bear as well, this is one method to manage their spending. As such, millennials look to avoid these risks. If a credit card is needed, prepaid is the option they choose.

Lack of Credit Scores

This is a big one. In the modern world, having a bad credit score can make your life incredibly difficult. If you want to take out a mortgage, open a bank account, or even lease a car, getting a job – a bad credit score will prevent you from doing so. Prepaid credit cards remove this risk. There’s no risk of late repayments or unreliability as they only let you spend the money that you’ve put on them; credit scores aren’t affected.

Fees and Convenience

Prepaid offers millenials options that banks often do not. This is why many are turning to the prepaid option. We all know that banks make their money from fees from overdrafts and low account balances. With prepaid, you pay one fee and that’s it. I am certain that people are getting sick of being nickel and dime to death. With prepaid, there is little need to worry about further up-sells or hidden fees. If you refer to figure 5 of the same study, the top reasons show that banks are simply behind the curve. Bank can’t offer the services and speed which millennials need their money. Just like with any service, consumers will flock to whoever can best cater to their needs.

Convenience and Diverse Needs Are Among Reasons for Using AFS Instead of Banks

No Risks Involved

In comparison with a debit card or credit card, there is very minimal risks involved with a prepaid credit card. The account holder has to deposit money into the account before they can spend it. No overdrafts, no loans, no credit checks, no risks. Choosing the prepaid option is straightforward. For a millennial who hasn’t had any sort of bank account before, this is what could attraction.

Taking each of these points into account, perhaps prepaid credit cards are a way for millennials to engage in managing their finances. This allows them from being stressed over the responsibility that comes with a regular credit card. Overspending is very easy with a credit card in any age group. Rather than jumping into the deep end and signing up for a regular credit card, the prepaid option acts as a middle-ground.

Now, we’re left with another question: are prepaid credit cards a long-term payment solution or will millennials start to ditch them in the near future?

Are Regular Credit Cards Coming to an End?

A crowd walking with a man in a red hoodieThe short answer is no, regular credit cards are far from reaching their expiration date. They are here to stay, It can’t be denied that prepaid credit cards have their uses. They can be beneficial in some situations, but they don’t hold the flexibility as regular credit cards.

Let’s consider some of the main reasons that previous generations have become accustomed to using credit cards. Not only are they more convenient for paying with but, if the cardholder doesn’t have enough money and they won’t have it for a few days. They can also earn reward points with their purchases. Regular credit cards essentially allow you to “borrow” the money and pay it when your bill is issued instead.

Keeping this in mind, prepaid credit cards are completely different; we could even go as far as comparing prepaid credit cards to debit cards, as we previously mentioned. You’re only able to spend the money that you’ve added to the card. The card grants the ability to pay for things in the same manner, but limited to your funds.

Taking into consideration, there is still ways to go in order for prepaid credit cards to overcome credit cards. Don’t hold your breath though; prepaid cards aren’t designed to be used frequently.

What does this all mean for millennials?

All in all, prepaid credit cards are definitely rising in popularity. However, as much as their popularity impresses us, they are far from taking over the traditional credit card. Of course, both types of a credit card have their pros and cons. And while their names might state otherwise, they’re very different payment methods. Perhaps, as more millenials ages and earn more income, there will be another shift.

Millennials are presented with more financial payment options than ever. Prepaid credit cards give them the financial experience of a regular card, but without same consequences of a traditional credit card. With all hope, this trend will continue. Eliminating debt and living on less has become a mantra of recent generations. This is partially fuel by debts taken on by the previous generations and experiencing firsthand on how debt affected them. Maybe future generations will benefit from what we consider a stepping stone into the real world. The other possibly is that this is a temporary trend as millennials gain stability and influence.


Question to readers: What is your preferred method of payment, and why? (please list your age group as well)


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2 Replies to “Why are Millennials Prepaid Credit Cards Usage on the Rise?”

  1. here’s my millennial credit card rant: i was at the beach a couple of years ago and our little group of 4 went to the beach bar to have some dinner. this was your typical happy hour, guitar player on the deck in the sunshine summer place. there was a little wait so my friend and i went to the patio bar to buy a couple of beers for the wait. well, i’ll be damned if every young person in that place wanted to pay for a single drink with a single credit/debit transaction (and not being sure what kind of beer they wanted). it was driving me apeshit ballistic! if you don’t have any cash at a bar you could at least group the drink into a round with your friends. or…..go and get 20 bucks out of the atm! it’s a bar! that was a lucky day for me not to have a machine gun.

    1. Haha Fred, I always enjoy your insights.

      This might be why they are using more prepaid cards now. I know for sure that carrying cash is not a popular thing nowadays, among all age groups.

      I don’t drink except on very rare occasions so I won’t share your experience. Even then, I would have half a beer and be done.

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