Good News for Millennials: Young People Less Likely to Default on Credit Card Debt

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by on October 15, 2013

The human mind’s tendency to stereotype and generalize can sometimes be truly astounding. For example, it’s commonly accepted in American culture that young people are reckless and older people are careful and wise.

These generalizations can profoundly shape many things, including our thinking about financial behaviors. In 2009, the U.S. Congress passed the CARD Act, which made it much harder for people under 21 to get credit cards. The thinking was that young adults were too immature to take on the responsibility of a credit card, and by making it harder to get one, the government was saving countless people from wrecking their credit at an early age. Sounds reasonable, right?

Actually, wrong.

In a classic case of conventional wisdom proving false, new research has shown that those in their twenties are much less likely to default on their credit cards than those in their forties and fifties. We know what you’re thinking…


As unlikely as it might seem, research from Arizona State University and the Federal Reserve Bank of Richmond has shown that those deemed by society as irresponsible, lazy and impulsive, meaning people in their twenties, are some of the least likely to default on a credit card. The researchers used regression analysis to plot instances of default against age groups (using 5-year age intervals) to look closely at which was most likely to default on credit card obligations, and the results were nothing short of surprising.

The data show that young borrowers are actually some of the most careful borrowers out there, at least as far as defaults are concerned. In fact, default rates begin to climb as consumers move out of their twenties and peak when they’re in their fifties.


Understandably, this study has economists and other social scientists asking why young credit card users appear to be more responsible when it comes to making good on their credit card obligations than their parents and grandparents. While there doesn’t appear to be a definitive answer (we’ll need some follow-up research), there are a few possibilities:

  • Twenty-somethings have watched so many people in their lives get eaten alive by credit card debt that they’re charging less and using credit cards less frequently overall. In fact, separate studies back up this idea.
  • Much like with the generation that was young during the Great Depression, the spending habits of people currently in their twenties have been forever changed by the Great Recession. In other words, maybe young people are more frugal and are borrowing less in general.
  • People in their twenties who can’t pay their credit card bills can cut their expenses in ways that people in their forties and fifties realistically can’t. For example, a 25-year-old can move back in with parents, get a roommate, or take on an extra job to make payments on their cards, helping them avoid a default. Middle-aged folks don’t have those options because of career and family obligations; so they have no choice but to default.

Whatever the reason for low rates of default among today’s twenty-somethings, it’s clear that our conventional wisdom about their level of responsibility has been wrong. Maybe it’s time to re-evaluate how we gauge the borrowing and spending habits of Americans in all age groups – or else research like this will continue to upend our thinking about how demographic characteristics affect credit behaviors. And this data has already made us look foolish enough, don’t you think?

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  • National Debt Relief

    Interesting findings to say the least. According to a recent Pew Research Study, 36 percent or 21.6 million millennials live with their parents so this may have something to do with it as you indicate. Parents can help pay the bills when their kids cannot.

  • brokeGIRLrich

    I agree with the last point too – that when we find ourselves in debt we have a wider variety of answers to it easily available. It’s not that a family of four couldn’t avail themselves of moving in with other family or developing an alternative lifestyle, it would just be far more difficult and disruptive.

    I’ve paid off most of my college debt in two and a half years by working for a cruise line and a circus and being able to “live” at my parents house during vacations. Jobs with places like cruise ships and out on tour with shows are usually filled by younger folks (23-35 year olds) because they’re not family friendly (oddly enough, the circus is an exception to that) and since they all provide room and board, that money can all go into paying down my debt as well. I’ve actually noticed that people I work with in these jobs, who are 95% millenials, have a lot less debt than other millenials I’ve met, or even if they’ve just started out and have ton, they’re paying it off very quickly. When you can turn over $2,000 a month without really batting an eye, it certainly helps. Especially on cruise ships where you can escort excursions for free as a crew member, drink for .90 a beer at night and spend your free time soaking up the sun for free on Caribbean beaches… there are worse ways to spend your 20s.