Econintersect: Young borrowers are the least experienced financially and, conventionally, thought to be most prone to financial mistakes. Is this actually true?
The conclusion from a Federal Reserve Bank of Richmond survey:
We find that individuals under the age of 21 are much less likely to experience a serious default than older individuals. Second, individuals who self-select into early credit card use are lower risk borrowers than people who choose to enter the credit card market later. Third, we find no evidence that entry into the credit card market before age 21 increases the risk of financial problems later in individuals. Finally, early credit card entry is associated with a higher likelihood of getting a mortgage early in life. The relation between mortgages and early credit card use indicates that young people may choose to enter the credit card market to build a strong credit history to later access home ownership. The results caution against interpreting early entry into the credit card market as a consequence of suboptimal or myopic behavior.
The full study follows:
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Are Young Borrowers Bad Borrowers? Evidence from the Credit CARD Act of 2009
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