With Home Equity Lacking, Will Millennials Embrace POS Financing?

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For the younger generation, for cash flow, look beyond four walls.

In the latest staff report from the New York Federal Reserve, titled “Trends in Household Debt and Credit,” it is noted that one of the features of debt is that it can “provide access to assets.”

That is, tap into debt, and you might have the cash handy to get what you want – or at least help bridge cash flow needs.

The authors noted that when it comes to taking advantage of home equity – building a cushion of wealth that can help shield borrowers through periods of reduced income – younger individuals may be left out. Said the Fed: “[M]ost of the increase in home equity, particularly equity that is tappable, has accrued to high-score and/or older borrowers. In 2006, 44 percent of tappable equity came from homeownerships with credit scores of 780; in 2017, the share had increased to 53 percent. The increase in tappable equity for older homeowners is even more striking – in 2006, only a fourth of total tappable equity was held by homeowners over 60, but in 2017, their share had increased to 41 percent.”

Home Equity (In)equity?

And here is the kicker: “Much of the corresponding decline in share came from homeowners under 45, whose share of equity declined from 24 percent in 2006 to 14 percent in 2017.”

It follows, then, that access to ready cash is a bit less readily available to would-be younger borrowers, noted – as we pointed out – by the Fed to be carrying “increasing amounts” of student debt, reduced homeownership and home equity, and relatively high or increasing student and auto loan delinquency rates.

Against this backdrop, we find, then, that millennials do not embrace credit cards as readily as other groups of users. Bankrate has estimated that roughly 33 percent of millennials have cards. That leaves room to embrace other means of payment programs, among them installment payments, which typically carry no interest charges (but may carry late fees).

FinTechs have been stepping in to feed demand for installment loans. Square late last year introduced an installment plan offering. As germane to millennials, some FinTechs – Affirm and Afterpay among them – have been helping apparel companies and other firms offer point-of-sale financing to millennials to afford (relatively) smaller-ticket items.

In one example, the apparel company Cotton On last year began offering installments via Afterpay. Brendan Sweeney, quoted in Bloomberg, said late last year that 20 percent of consumers had utilized the installment feature, with “a remarkable uptake from millennial customers,” who spent $50 per order.

In more recent news, Affirm has partnered with Walmart to help finance purchases over $150 and capped at $2,000 – a pact admittedly not focused just on millennials, but on a broad swathe of consumers.

As Affirm Founder and CEO Max Levchin told Karen Webster last year, “cash [as a way to pay for things] is just fine as long as one has enough of it. But for most consumers, credit is a way to smooth out a lot of pedestrian expenses that can spring up and create cash flow issues for them.”

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