A common misconception today is that young adults are financially irresponsible, mainly because of their lack of experience in money management. Researchers from the Federal Reserve and Arizona State University suggest that college-aged credit card users are more responsible than middle-aged borrowers. The study indicates a strong relationship between early credit card use and mortgage loans, indicating that young borrowers are more likely to own a home at a young age.
Debunking the Myth
The results of the study showed that cardholders between the ages of 18 and 25 are the least likely to default on their credit cards. They are also most likely to develop strong credit profiles in the future. The study found “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.”
Laws to Protect Young Cardholders
In 2009, the Credit Card Accountability, Responsibility, and Disclosure Act became law. The law prohibits applicants under the age of 21 from getting a credit card without a cosigner or proof of independent income. Although the legislation was intended to protect young adults from predatory practices among some credit card companies, the new study’s authors argue allowing college students to apply for credit cards might make sense.
Young Borrowers = Future Homeowners
Many college-aged cardholders use credit cards to build their credit, so they may access homeownership in their early 20s. Young adults need the opportunity to apply for and use credit cards to learn how to responsibly manage their finances. Credit unions are a great start for young adults looking to establish credit. They offer competitive interest rates on credit cards and can help keep finances in check.
Start building your credit today with assistance from Valley Federal Credit Union. Visit one of our Rio Grande Valley branches or call our main office in Brownsville at (956) 546-3108.