Friday, November 1st, 2013
In a study that is surprising many parents who worry about their children’s financial common sense, researchers have found “no compelling evidence” that young people are “bad borrowers” or at elevated risk for having credit problems. More from Today.com:
The key findings:
- Credit cardholders under the age of 21 are substantially less likely to experience a serious delinquency (90 days or more past due) or default than those who get one later in life.
- Someone age 40-44 is 12 percent more likely to have a serious default than a 19-year-old.
- Those who get a credit card in their teen years are also more likely to get a mortgage while young.
“There are some big benefits to getting a credit card early, so parents don’t need to freak out about it,” said study co-author Andra Ghent, assistant professor in the W.P. Carey School of Business at Arizona State. “They may well be able to manage it just fine.”
The authors reached that conclusion after studying nationwide credit card data collected by the New York Federal Reserve Bank for 2005 to 2008. To examine the cardholder’s behavior without the influence of a parent or guardian, anyone with a cosigned card was excluded from the analysis.
The data did show that young people are more likely to experience minor delinquencies (30 to 60 days past due) than older cardholders. But, as they learn from their mistakes and figure out how to make payments on time – such as setting up automatic bill pay – the frequency of these minor delinquencies drops.
Prof. Ghent believes making small mistakes with credit early in life can prevent major ones later on.
Plus: Curious about what career your child may have? Find out with our fun quiz!
Image: Teen with credit card, via Shutterstock
Add a Comment
Friday, July 15th, 2011
Parents who are trying to teach their children fiscal responsibility will want to take note of a new study by sociologists at Ohio State University that found that young adults between ages 18 and 27 view credit card and school loan debt as marks of maturity and achievement, rather than potential burdens.
In fact, an OSU report stated, the higher the credit card and college loan debts among young adults, the more self-esteem they reported.
Researchers warned that while debt can present opportunities to young people–such as attending college–it should not be taken lightly.
“Debt can be a positive resource for young adults, but it comes with some significant dangers,” said Rachel Dwyer, an assistant professor of sociology and the study’s lead author, “Young people seem to view debt mostly in just positive terms rather than as a potential burden.” The report also drew conclusions about how socioeconomic class affected young adults’ perception of debt:
Results showed that those in the bottom 25 percent in total family income got the largest boost from holding debt – the more debt they held, both education and credit card, the bigger the positive impact on their self-esteem and mastery.
Those in the middle class didn’t see any impact on their self-esteem and mastery by holding educational debt, perhaps because it is so common among their peers that it is seen as normal. But they did see boosts from holding credit-card debt – the more debt, the more positive effects.
On the other hand, the study found that young adults who came from the most affluent families received no boost at all from holding debt.
“The wealthiest young people have the most resources and options available to them, so debt is not an issue for them,” Dwyer said.
“The groups that most need the debt – the middle and lower classes – get the most benefits to their self-concept, but may also face the greatest difficulties in paying off what they owe.”
(image via: http://www.ehow.com/)
Add a Comment