Young credit card users are more responsible, study finds

Oct 08, 2013

If you think young people don't know how to manage money and pay down their credit cards, then you should think again. A new study from the W. P. Carey School of Business at Arizona State University and the Federal Reserve Bank of Richmond shows young borrowers – 18 to 25 years old – are among the least likely credit card users to have a serious default on their cards. Not only that, they're also more likely to be good credit risks later in life.

"Young credit card users actually default less than middle-age borrowers," says Andra Ghent, assistant professor in the W. P. Carey School of Business. "Also, those who choose to get credit cards early in life are more likely to learn from any minor defaults and move on, avoiding major credit card problems in the future. Plus, they're more likely to be able to get a mortgage and become a homeowner at a young age."

The new research by Ghent, as well as Peter Debbaut and Marianna Kudlyak of the Federal Reserve Bank of Richmond, is now a Federal Reserve working paper. In it, the researchers analyzed consumer data from the New York Federal Reserve Bank Consumer Credit Panel/Equifax to determine whether young borrowers are worse credit risks than others and to estimate the effect of individuals choosing to get a credit card at a young age.

The results demonstrate that part of the Credit Card Act of 2009 may not have been necessary. The act made it illegal to issue a credit card to individuals under 21 unless the person has a cosigner or submits financial information indicating an independent means of repaying the debt. It also includes a provision banning companies from recruiting credit card users within 1,000 feet of any college campus or at college events.

"Letting students apply for credit cards may actually make sense," says Ghent. "These students are the people who want credit, need to build up a good credit history and have a steeply sloped income profile. If they don't have a student loan, then a credit card may be the only way they can establish a decent credit history."

The researchers found that while people in their early 20s are more likely to experience minor delinquencies (30 or 60 days past due), they are much less likely to experience serious delinquency (90 days or more past due). In fact, someone age 40 to 44 is 12 percentage points more likely to have a serious delinquency than a 19-year-old.

However, the Credit Card Act of 2009 has clearly had an impact on how many are getting . Individuals under 21 are 18 percent less likely to get a credit card following passage of the act, and that's not necessarily a good thing.

"You can't learn by just watching credit card use," adds Ghent. "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."

Explore further: Morningstar: Client credit card data may be leaked

More information: www.public.asu.edu/~aghent/research/DebbautGhentKudlyak_July2013.pdf

add to favorites email to friend print save as pdf

Related Stories

College students and credit card debt—parents at fault?

Oct 18, 2012

Parents need to be good role models to help their children make sensible financial decisions, according to Adam Hancock and his team, from East Carolina University in the US. Their work highlights that parents who argue about ...

Chinese credit card usage growing quickly, study finds

Aug 28, 2012

(Phys.org)—In the past two decades, the Chinese economy has undergone many drastic reforms in an effort to compete more effectively on the international market. These reforms included allowing foreign banks to offer credit ...

Morningstar: Client credit card data may be leaked

Jul 06, 2013

Morningstar Inc. says it discovered an illegal intrusion into its systems that may have compromised some of its clients' personal information, including email addresses, passwords, and credit card numbers.

Credit card hacker sentenced to 10 years in prison

Jul 23, 2011

Rogelio Hackett, who stole more than half a million credit card numbers used to rack up nearly $40 million in illicit debt, was sentenced Friday to 10 years in prison and fined $100,000.

Recommended for you

Which foods may cost you more due to Calif. drought

6 hours ago

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

23 hours ago

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Newlyweds, be careful what you wish for

A statistical analysis of the gift "fulfillments" at several hundred online wedding gift registries suggests that wedding guests are caught between a rock and a hard place when it comes to buying an appropriate gift for the ...

Can new understanding avert tragedy?

As a boy growing up in Syracuse, NY, Sol Hsiang ran an experiment for a school project testing whether plants grow better sprinkled with water vs orange juice. Today, 20 years later, he applies complex statistical ...

Crowd-sourcing Britain's Bronze Age

A new joint project by the British Museum and the UCL Institute of Archaeology is seeking online contributions from members of the public to enhance a major British Bronze Age archive and artefact collection.

Roman dig 'transforms understanding' of ancient port

(Phys.org) —Researchers from the universities of Cambridge and Southampton have discovered a new section of the boundary wall of the ancient Roman port of Ostia, proving the city was much larger than previously ...