Tag Archives: Federal Reserve Bank

credit

Study: Young Credit Card Users Are MORE Responsible

If you think young people don’t know how to manage money and pay down their credit cards, then you should think again. A new study from the W. P. Carey School of Business at Arizona State University and the Federal Reserve Bank of Richmond shows young borrowers – 18 to 25 years old — are among the least likely credit card users to have a serious default on their cards. Not only that, they’re also more likely to be good credit risks later in life.

“Young credit card users actually default less than middle-age borrowers,” says Assistant Professor Andra Ghent of the W. P. Carey School of Business. “Also, those who choose to get credit cards early in life are more likely to learn from any minor defaults and move on, avoiding major credit card problems in the future. Plus, they’re more likely to be able to get a mortgage and become a homeowner at a young age.”

The new research by Ghent, as well as Peter Debbaut and Marianna Kudlyak of the Federal Reserve Bank of Richmond, is now a Federal Reserve working paper. In it, the researchers analyzed consumer data from the New York Federal Reserve Bank Consumer Credit Panel/Equifax to determine whether young borrowers are worse credit risks than others and to estimate the effect of individuals choosing to get a credit card at a young age.

The results demonstrate that part of the Credit Card Act of 2009 may not have been necessary. The act made it illegal to issue a credit card to individuals under 21 unless the person has a cosigner or submits financial information indicating an independent means of repaying the debt. It also includes a provision banning companies from recruiting credit card users within 1,000 feet of any college campus or at college events.

“Letting students apply for credit cards may actually make sense,” says Ghent. “These students are the people who want credit, need to build up a good credit history, and have a steeply sloped income profile. If they don’t have a student loan, then a credit card may be the only way they can establish a decent credit history.”

The researchers found that while people in their early 20s are more likely to experience minor delinquencies (30 or 60 days past due), they are much less likely to experience serious delinquency (90 days or more past due). In fact, someone age 40 to 44 is 12 percentage points more likely to have a serious delinquency than a 19 year old.

However, the Credit Card Act of 2009 has clearly had an impact on how many young people are getting credit cards. Individuals under 21 are 18-percent less likely to get a credit card following passage of the act, and that’s not necessarily a good thing.

“You can’t learn by just watching credit card use,” adds Ghent. “You have to get a card, pay it down every 30 days, and experience, in order to learn. It’s also hard to get a mortgage if you can’t get a credit card to build up your credit history.”

The full study is available at http://www.public.asu.edu/~aghent/research/DebbautGhentKudlyak_July2013.pdf.

economy

2013 Economic Forecasts for U.S. & Arizona

Arizona’s economy improved somewhat this year, but what can we expect in 2013? Top experts on the U.S. and Arizona economies will deliver their forecasts for the state, nation, stock market and housing market at the Valley’s largest and most trusted economic-forecasting event on Dec. 5.

The 49th Annual Economic Forecast Luncheon is co-sponsored by the Department of Economics at Arizona State University’s W. P. Carey School of Business and JPMorgan Chase. About 1,000 people are expected to attend the event at the Phoenix Convention Center.

“Arizona’s economic forecasters are patting themselves on the back, since their projections made a year ago appear to be accurate for 2012; the state seems certain to record about 2-percent job growth, and we are seeing the beginning of a housing comeback,” says Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “However, 2013 is a different story. A huge cloud of uncertainty is caused, not only by questions about what the next Congress will do, but also about how the overall U.S. economy will react to recession in Europe and slower growth in China. Though the national economy always has some impact on Arizona, until housing and population growth really pick up, the state seems destined to closely follow the national business cycle. If the U.S. economy contracts, then Arizona’s economy will, too. That’s the major risk we’re watching.”

Presentations will include forecasts on:

* Arizona and the regional economy from McPheters, who is also editor of the prestigious Arizona and Western Blue Chip Economic Forecast publications.
* The U.S. economy from Beth Ann Bovino, deputy chief economist at Standard & Poor’s, a widely quoted media expert with two decades of financial experience, including a position at the Federal Reserve.
* The financial sector from Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., who served as an economist at the Federal Reserve Bank of New York, appears monthly on CNBC and is a member of the Reuters, Bloomberg and Dow Jones weekly economic indicator panels.
* Real estate and construction from Elliott D. Pollack, chief executive officer of Elliott D. Pollack and Company, a highly regarded Scottsdale-based economic and real estate consulting firm.

The 49th Annual Economic Forecast Luncheon will be held in the Phoenix Convention Center’s West Ballroom on Wednesday, Dec. 5 from 11:15 a.m. to 1:30 p.m. Admission is $90 per person. Proceeds are used to support student scholarships, faculty research, and other academic and professional activities in the Department of Economics at the W. P. Carey School of Business.

For more information, including registration details, go to www.wpcarey.asu.edu/efl or call (480) 965-3531.