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The New Card Sharks: Charge It -- Then Pay It Off

Photograph: Getty Images Close

Photograph: Getty Images

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Photograph: Getty Images

Breaking News: Most 15-year-olds are clueless about money. That bit of wisdom comes courtesy of the Organization of Economic Cooperation and Development, which quizzed 29,000 15-year-olds in 18 countries. It found that only one in ten U.S. teens is a financial literacy “top performer.” The OECD is using the test to urge more financial education in schools, despite evidence that such courses largely don’t work.

Meanwhile, American adults who’ve never spent a minute in a financial literacy course are getting smarter about their money. The last several years drove home brutal lessons about the dangers of debt. Americans are now using credit cards more wisely, maximizing rewards and avoiding interest charges.

The change is most striking in the younger members of the millennial, or Generation Y, generation. More than half of those aged 21 to 26 pay off their credit card balance every month, according to a recent survey released by Aite Group. That's up from 37 percent in 2010. Though older Americans are less likely to pay their entire balance than 20-somethings, all generations have improved since 2010.

Weighed down by record levels of student loans, millennials are not about to rack up an even more expensive kind of debt, says Matthew Eschmann, of market research firm Corporate Insight. While Americans have taken out more auto and student loans as the economy recovered, levels of credit card debt are stagnant. Consumer credit data released July 8 shows $872 billion in credit cards and other revolving debt. That number is up just 3.8 percent since 2010, way behind the rate of inflation over that same period, and $149 billion off the 2008 peak.

Young people aren’t ditching credit cards. They prefer credit cards to debit cards because of the way credit cards enable them to manage their cash levels throughout the month, Eschmann says. Many young people are hoarding as much cash as possible, so they'd rather get an extra month's cushion while they wait for a credit card bill than see their account balance drop immediately with each purchase.

Lots of Americans are embracing credit cards to get rewards. Two in five millennials and almost one third of baby boomers told Aite Group that they use credit cards as often as possible to maximize reward points. And they're getting savvier about which rewards programs are the best deals. Cash-back reward programs are big, Eschmann says, as well as special offers that give discounts at participating chain stores and restaurants. Far less popular: Catalogs that let cardholders order merchandise with points. The items in these catalogs can be lousy deals.

For banks, the new consumer behavior is a mixed blessing. Consumers pay fewer credit of those lucrative card interest charges. Their stronger focus on rewards also means that card issuers may have to sweeten their programs. Still, banks get merchant fees every time users pull out their credit cards. Even if some consumers are wising up, credit cards remain a dangerous temptation -- as well as a safety net for those in dire financial straits. Many Americans still deserve their reputation as credit-card junkies, but young people are starting to challenge it.

More stories by Ben Steverman:

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