When I was 15, my parents gave me my first credit card. It was for emergency use only. Many people thought this was crazy. Most of my friends didn’t have one. But it was a way to expose me to credit and teach me about financial literacy. Every time I used the card, I had to account for it and keep track. These are lessons I carried with me into getting my first job, starting college life and now as I ready to enter my career. Many people assume that young people should not be trusted to handle finances responsibly, but it’s time to rethink this myth.
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A study conducted by the W.P. Carey School of Business at Arizona State University and the Federal Reserve Bank of Richmond found that 18-to-25 year olds are the least likely group to default on payments. While they are more likely to commit minor delinquencies like paying a bill 30 to 60 days late, it usually doesn’t go any further.
Adults are more likely to experience serious delinquencies, like being 90 or more days late with a payment. In fact, people age 40-44 years old are 12 percent more likely to experience serious payment issues than a 19 year old.
The study also found that early entry into credit card use does not lead to increased financial problems later. The researchers found no link between getting a credit card before the age of 21 and an increased risk of financial problems later in the 20s. Also, those who self-select early entry into credit card use are lower risk borrowers than users who start using credit cards later.
Tips to Keep in Mind
No matter what age, there are simple, responsible habits that every credit card user should embrace. Online banking is one of the best advantages of living in our time. Auto-pay and instant access to your statements are assets to spending – and borrowing – wisely. Finding a card that matches your spending habits, researching and using rewards wisely can maximize your saving while borrowing.
Choosing your payment date is another little-known method for ensuring you can make payments. Scheduling the payment a few days after your paycheck clears means money will be in your account but there isn’t time to spend it on temptations. Be sure to use your card at least once a year so that companies do not cancel the card. Putting thought and self-regulation into the process of credit card usage will make you a more responsible user.
Related Article: 4 Expenses You Should Never Put on a Credit Card
The best way to learn about credit is to get a credit card, use it sparingly, make payments every month, and start building a credit history. Just watching credit card use is not enough. The experience is an invaluable method for becoming fiscally responsible.
Part of the Credit CARD act of 2009 restricts those under 21 of obtaining a credit card without cosigning as a dependent or proving their own financial means of repaying monthly debt. Talk with your parents (or teenage kids) to decide if you are ready to get a credit card. Set some rules and limits and start building credit.
The results of this study demonstrate the value of learning financial responsibility early. My credit card may be used for more than emergencies now, but tracking my spending and paying off my charges immediately has taught me skills that I will utilize throughout my life.
Related Article: What to Look for in a Credit Card
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