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Credit cards? Nah! Americans moving to cash, debit cards.

Credit cards are losing their luster as a method of payment, especially among young adults.

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The move to debit cards isn't good news for retailers – a linchpin of the economy. "They won't grow as aggressively as they have in the past," Mr. Riley says. But "you will see a reduction in how deeply people can get into debt, which is positive."

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The switch is most apparent among young adults. Among all adults, 34 percent said they used a debit card most often for purchases or bill payments, and 26 percent preferred a credit card, according to a survey by Javelin Strategy & Research, a financial-services research firm in Pleasanton, Calif. Among those ages 18 to 24, the credit-debit split was more pronounced: 46 percent versus 20 percent.

"They want real-time information," says James Van Dyke, Javelin's president and founder. "They want a payment method that takes funds out of their deposit accounts now…. It's a profound and lasting trend."

Not everyone's abandoning credit cards

Some disagree. "I use credit cards," says Tim Chen, a millennial and founder of, a credit-card website in New York. "Most of my friends working in finance use them. They're trying to get rewards from credit-card usage that are usually better than with debit cards."

Once the economy strengthens, consumers typically spend more – and boost credit-card use, he adds. This year the average household will charge $1,703 per month on credit cards, the highest level since 2002, says Lauren Guenveur, study director for financial services practices at Synovate, a New York market-research firm.

Credit-card reforms could have a mixed impact on the shift to debit cards. While the Credit Card Accountability, Responsibility and Disclosure Act of 2009 creates numerous new card-user protections, it also contains possible disincentives to credit-card use. Among the latter: The law bars those under age 21 from obtaining a credit card unless they can show proof of enough income to pay off debts or have an adult as cosigner.

On the other hand, a part of the Dodd-Frank Wall Street reforms could lead to new fees on checking accounts and/or debit cards.

Many observers believe a provision of the so-called Durbin Amendment, which aims to ensure swipe fees are "reasonable and proportional to the processing costs incurred," will cut interchange fee revenue for banks. As a result, banks could begin charging debit-card users, says Mr. Miles of MasterCard.

The legislation takes effect in July.


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