The Fall And Rise Of Credit Cards

In its 2010 Payments Study report, the Federal Reserve reported that the number of credit card payments declined by 0.2% per year between 2006 and 2009. From a dollar volume perspective, the total amount charged on credit cards in 2009 was 10% lower than the amount charged in 2006. The study notes that:

This decline in credit card usage may reflect the economic recession and may not represent permanent changes in the financial behavior of consumers and businesses.

There are a number of people who believe that the decline in credit card dollar and transaction volume does reflect a long-term trend. Business Insider writes that this is “evidence of the paradox of thrift, where consumers prefer to pay down debt and save rather than spend.”

And at a recent symposium on Gen Y sponsored by a large US FI, a noted industry analyst claimed that “credit cards will become obsolete – Gen Yers will never adopt them.”

This latter statement is simply not true. According to research just done by Aite Group, in Q4 2010, 42% of Gen Yers used a credit card to make a least one purchase. And credit cards accounted for almost a quarter of all card-based transactions made by Gen Yers (card-based transactions include debit cards, credit cards, prepaid cards, government benefit cards, and payroll cards).

Granted, it’s true that

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