Young people are more financially responsible than the conventional wisdom implies.
According to a new study from the Federal Reserve Bank of Richmond and Arizona State University, college-age kids--18 to 21--are significantly more savvy with credit than previously assumed and are among the least likely to default on credit cards.
The study, which examined national credit card data from 2005 to 2008, determined that credit card holders under 21 are actually among the more-responsible credit users, according to CNBC. They are more likely to pay on time and less likely to pay a bill 90 days late or more. They are also 12 percent less likely to seriously default than a 40-year-old and are more likely to receive a mortgage while young.
The study says there is "no compelling evidence that young borrowers are bad borrowers."
Despite generally positive findings for young borrowers, the study did find that when a young person is first establishing credit, they are more likely to commit delinquencies and pay 30 to 60 days later than their older counterparts. These late payments end quickly, however, as young people begin to understand the credit system.
"There are some big benefits to getting a credit card early, so parents don't need to freak out about it," study co-author Andra Ghent, said assistant professor in the W.P. Carey School of Business at Arizona State, said in a release. "They may well be able to manage it just fine."
In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act, which prohibits lenders from issuing a card to anyone under 21, unless they can prove they have independent means or a co-signer. For the study, anyone with a co-signed card was excluded from study.
According to the report, the number of people under 21 with a credit card has dropped by 18 percent, since the CARD Act was implemented. Based on the research conducted, this delay in establishing credit may actually lead to negative credit history or delayed mortgage in the future.