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.
Image: Teen with credit card, via Shutterstock