Why so many young adults accidentally destroy their credit
Good credit is a little like insurance – you don’t really think much about it until you need it. Which is probably at least part of the reason why young adults tend to do so much damage to their credit without even knowing it.
According to a survey and data analysis from Credit Karma, over two-third of Americans admit to making some sort of significant, credit-related mistake before the age of 30. This includes overspending on credit cards, missing payments, and defaulting on accounts.
Undereducated and unprepared
These kinds of damaging mistakes can really set young adults back just at the moment they would most benefit from a strong credit history. Many personal and household goals can be derailed by damaged credit. In fact, three out of four respondents to the survey felt that the financial mistakes they had made as a young adult negatively impacted the quality of their life.
Probably not coincidentally, less than 30 percent of those surveyed stated that they had had any form of financial education prior to college, with 73 percent believing that financial education could have helped them avoid their financial missteps. Additionally, 69 percent claimed they didn’t even know what credit scores were at the time they received their first credit card.
Whether or not they’ve gone to college, and whether or not they’re carrying massive amounts of student loan debts, young adults leaving home and managing their own finances are going to face a series of difficult choices. They’re also going to be required to take on responsibilities they may not be prepared for.
Taken together, those two factors lead many young adults to make decisions that seem to suit their immediate needs, but put their future needs at risk, such as:
- Living without a clearly defined budget
- Prioritizing wants over needs
- Failing to create an adequate student loan repayment strategy
- Signing up for services or utility packages they cannot afford
- Failing to make regular, timely bill payments
Planting the seed
Financial education doesn’t need to be time-consuming or complex, but it is absolutely essential that young adults receive at least a basic education in managing their funds and utilizing credit. We make teenagers take driver’s education courses before they’re allowed to drive because no one expects them to be able to drive safely and confidently without some amount of instruction. Similarly, we shouldn’t expect young adults to make smart money choices if we don’t first show them how it’s done.
As it stands right now, when it comes to financial know-how, we’re often forced to learn as we go. And that can certainly be an effective way to learn. But a lot of lasting damage can happen on the way to figuring out how to get organized, how to set our priorities, and how to separate the right choice from the easy choice.
If you have children, make sure personal finance is part of their curriculum; if not at school, then at least at home. You don’t need to be an expert to share the lessons you’ve picked up over the years. Besides, teaching them how to read a credit report can’t be anywhere near as frightening as teaching them to drive.