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

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