A New Study Suggests Young People Need to Be Educated on Credit Card Debt

Readers of Straight Talk know that financial education for young people is something we consider to be very important — and a recent study suggests the need for this kind of education is as necessary as ever, especially when it comes to using credit responsibly.

A study published in the January issue of the journal Economic Inquiry found that the average person born between 1980 and 1984 has about $5,000 more credit card debt than their parents had and $8,000 more than their grandparents had at the same age.

The study also includes data on the rate at which young people repay credit card debt, which The New York Times’ Bucks blog notes wasn’t previously available to most researchers. This data shows that the payoff rate for younger people is 24 percent lower than their parents and about 77 percent lower than their grandparents’.

So why are young people racking up so much credit card debt and taking so much time paying it off? A contributing factor is that it’s easier to get credit. Lucia Dunn, an Ohio State economics professor who co-authored the study, has a theory. “It’s a lot more socially acceptable to have debt and go into bankruptcy.”

Dunn tells the Times’ Bucks blog that these less-than-stellar repayment habits may be because young people have more student loans, forcing credit card repayment to take a back seat. She also notes that the continuation of this trend could lead to a generation of elderly people carrying significant credit card debt.

So how can you teach your kids to be smart about credit card usage? If your children are out of the house and on their own, you may want to talk to them about the importance of having an emergency fund. Having 3 to 6 months worth of expenses stowed away in a savings account might prevent them from having to use a credit card to cover an emergency like an unforeseen car repair or a period of unemployment.

If you’re expecting a child or have one living with you, Money Talks News advises you to teach them about credit at an early age. They suggest giving your teenager a credit card linked to your own account so you can monitor their usage. Money Talks News also urges you to involve them in your monthly budgeting and bill paying so they can get an idea of how the household finances work.

If you’re looking for a place to start, take a look at Ally Wallet Wise. Wallet Wise offers online courses and quizzes on personal finance, as well as information on real-world events where your child can learn more about smart money management.

Have you talked to your children or grandchildren about how to use credit cards responsibly? What are your rules for using credit?