Mitigating credit card delinquency amongst young adults
Credit is a valuable financial tool that allows individuals to handle unforeseen expenses and manage large payments over time. However, recent data indicates a concerning uptick in credit card delinquency among young adults in the United States and Canada.
According to a report from the New York Fed, credit card delinquency rates among individuals aged 18 to 29 have risen to 8.3% in the first quarter of 2023, compared to 5.1% the previous year.
Equifax reports a similar trend in Canada, with a nearly 31% increase in delinquency rates among 18- to 25-year-olds. Non-mortgage debt levels have also risen significantly for millennials, further exacerbating the problem.
Source: Federal Reserve Bank of New York
Inflation and its impact
The primary driver behind the uptick in credit card delinquency is inflation. Younger individuals, who typically have lower savings, wealth and earnings, are disproportionately affected by rising prices. Additionally, record high interest rates are making credit card debt more expensive. Bankrate reports current credit card interest rates average above 20%, compared to around 16% just a year ago. A tightening of credit standards further compounds the challenges faced by young adults in managing their credit effectively.
Inflation has caused a change in the way young adults use their credit cards. A survey conducted by a NerdWallet/Harris Poll among Canadians who experienced changes in their credit card habits in the past year revealed that the primary reason for the change was the increased prices of goods and services (68%). However, other factors also played a role in altering credit card behavior, such as significant unexpected purchases (23%), employment changes leading to reduced income (20%), adjustments in living situations (16%) and the need for higher monthly income for rent or mortgage payments (16%).
Source: NerdWallet
A new solution
Credit unions are well aware of the toll inflation is having in young adult loan delinquency. Delinquency not only harms individuals' financial health but also impacts a credit union's financial performance. To address this issue, credit unions should look at enhancing their loan delinquency strategies with a financial education program.
The implementation of a financial education program has the potential to yield advantages ranging from reduced delinquency and loan losses, to increased member engagement and financial wellness. By integrating programs like It's a Money Thing from Currency Marketing into their lending strategies, credit unions effectively manage delinquency issues and promote financial well-being for both members and the credit union amidst the current rise in delinquency across North America.
Tim McAlpine is the Founder & CEO of Currency Marketing. He is best known for developing the It's a Money Thing Financial Education Program that credit unions from around North America are using to connect with new young adult members. He is also a driving force behind CUES Emerge, an emerging leader program that combines online learning, peer collaboration and an exciting competition component.
