A new study has been released by Arizona State University’s School of Business and the Federal Reserve Bank of Richmond revealing that not only are American youth more responsible with credit now, but that they may tend to remain more responsible with credit cards than previous generations.
Young Borrowers Less Apt to Default on Credit Cards
The study reported that credit card users aged 18-25, typically referred to as Millenials, were less apt to default on their credit cards. According to the study’s authors, “Young borrowers are the least experienced financially and, conventionally, thought to be most prone to financial mistakes. Our results challenge the notion that young borrowers are bad borrowers.”
The study disputes the reasoning behind the portion of the Credit Card Accountability Responsibility and Disclosure Act of 2009 that restricts access to credit cards for those under the age of 21 without a cosigner. The Act allows those younger than 21 to obtain credit if they can demonstrate the ability to pay bills. The Act also prevents credit card companies from marketing to college campuses or at college events.
Young Borrowers Have More Late Credit Card Payments
The study revealed that middle-aged borrowers aged 40-44 were the most likely to have a serious default – 12% more likely than a Millenial and 13% more likely than those over the age of 65. Millenials, however, had more 30- and 60-day late payments than their older counterparts in the study.
The researchers support changes in the Credit Card Accountability Responsibility and Disclosure Act of 2009 because they believe young people need to be able to practice using credit. The study’s author, assistant professor Andra Ghent, explained, “You can’t learn by just watching credit card use. You have to get a card, pay it down every 30 days, and experience, in order to learn. It’s also hard to get a mortgage if you can’t get a credit card to build up your credit history.”
Young credit card users as well as users of any age can be more responsible with their credit debt and even repair damaged credit by doing the following:
- Pay credit card payments on time, every month
- Pay more than the minimum amount due
- Don’t use all of the available credit
If you have questions about credit cards in general, or how you can establish and build your credit responsibly, Ovation has tools and knowledgeable counselors who are here to help.