Are Young Borrowers Bad Borrowers? Evidence from the Credit CARD Act of 2009

71 Pages Posted: 7 Aug 2013 Last revised: 22 Sep 2014

See all articles by Peter Debbaut

Peter Debbaut

Federal Reserve Bank of Richmond

Andra C. Ghent

University of North Carolina (UNC) at Chapel Hill - Finance Area

Marianna Kudlyak

Federal Reserve Bank of San Francisco

Date Written: September 21, 2014

Abstract

Young borrowers are the least experienced financially and, conventionally, thought to be most prone to financial problems. Our results challenge the notion that young borrowers are bad credit card users. We first show that the CARD Act of 2009 succeeded in its aim of reducing young borrowers' access to credit. We then exploit the Act to identify what types of individuals get a credit card before age 21. Early entrants default less and are more likely to get a mortgage early. Early entrants also have more affluent parents and parents that default less.

Keywords: Consumer Protection, Household Finance, Life Cycle Borrowing, Credit Card Default

JEL Classification: G21, G28, D14, D18

Suggested Citation

Debbaut, Peter and Ghent, Andra C. and Kudlyak, Marianna, Are Young Borrowers Bad Borrowers? Evidence from the Credit CARD Act of 2009 (September 21, 2014). FRB Richmond Working Paper No. 13-09R. Available at SSRN: https://ssrn.com/abstract=2306556 or http://dx.doi.org/10.2139/ssrn.2306556

Peter Debbaut

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Andra C. Ghent

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Marianna Kudlyak (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

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