Why It Might Be A Good Idea to Give Teens Credit Cards

Beyond the Headlines: Personal finance news and research you may have missed

Beyond the Headlines

If you’ve been following the financial news lately, you’ve probably heard that pandemic-era consumer protections are coming to an end, although some of the social safety net that the government created to weather the economic downturn remains. A federal ban on evictions expired July 31 after a last-ditch effort by Democratic politicians failed to extend it. Hard-pressed renters can still claim emergency rental aid from a massive federal program, but the assistance has been slow to reach those who need it. It’s not just renters facing the end of protections, though, as homeowners behind on their payments faced the end of a foreclosure moratorium. A few other protections remain in place.

You’ve also probably heard how the economy is heating up as it recovers from the pandemic’s economic downturn—the gross domestic product grew faster than pre-pandemic rates in the second quarter, a new report said. Consumers got more money from paychecks in June, which helped fuel an increase in spending. However, that spending has gone hand-in-hand with a spike in prices, as inflation in June, compared to the year before, saw its biggest increase in three decades

But did you hear that giving teenagers access to credit can actually benefit them in the long run, according to one analysis? Or that a growing percentage of Americans now live in households that get monthly payments from the government? Or that mothers take a big financial hit during retirement compared to women who never had kids?

To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news you may have missed.

What We Found

Maybe 18-Year-Olds Deserve a Little Credit

What’s the best age to start getting credit and building your credit history? That’s a question college-aged people and their families often grapple with, wondering whether it’s better to start building credit early or to wait until the person is mature enough to handle the responsibilities of a credit card.

An analysis by a Federal Reserve researcher based on data from the Federal Reserve Bank of New York Consumer Credit Panel suggests that when it comes to building credit, earlier is better—depending on what kind of credit it is.  Among people who got credit for the first time between the ages of 18 and 30, 18-year-olds had higher average scores (as rated by Equifax) by the time they reached 30 than people who waited longer before getting credit for the first time, according to the analysis, which was published in July. Specifically, average credit scores of 30-year-olds who got credit for the first time at age 18 were 18 points higher than those who first got credit at age 20.

Digging further into the phenomenon, it turns out the type of credit matters as well. People whose first credit was a credit card at age 18 had credit scores averaging 675 by the time they were 30, similar to those who took out student loans, who averaged 674. But people whose first loans were for cars averaged a 651 credit score by age 30, and those who got consumer finance loans had scores of 642—33 points lower than those who got credit cards. 

“There may be a benefit to one's credit score specifically associated with” starting to get credit at age 18, concluded the study, which did not explore why people’s financial lives fare better if they first get credit at a particular age. 

Measuring the ‘Motherhood Penalty’

When women leave the workforce to take care of children, they suffer not only a hit to their present-day earnings, but to their future retirement income as well, according to a new study that shows how the Social Security system works to reduce the so-called motherhood penalty—but doesn’t eliminate it entirely.

Childless women receive $1,301 in median monthly Social Security payments on average, but mothers receive only about 60% of that: $785 a month, according to a recent analysis by researchers at the Center for Retirement Research at Boston College. That’s because Social Security payments are based on lifetime earnings, which are much lower, on average, for mothers than for childless women. 

The motherhood penalty in Social Security is reduced somewhat because the program’s benefits structure replaces a larger share of income for those who earn less, and also because of a provision, used more infrequently these days, that allows women to receive either her own worker benefit, or 50% of her spouse’s benefit if they’ve been married 10 years or more, the analysis shows. (In part because of decreasing marriage rates and higher rates of divorce, just 18% of women collecting Social Security claimed a spousal benefit in 2019, down from 35% in 1960.)

Lawmakers have recently shown more willingness to address the motherhood penalty. The temporary child tax credit expansion should help, the researchers said, and a proposed bill in Congress—the Social Security Caregiver Credit Act—would cut the gap by incorporating caregiving into Social Security income calculations. 

Government Checks Have Become Extremely Common For Households

The temporary child tax credit expansion that authorized monthly payments of up to $300 per child to households through December may be controversial, but it’s also making a huge impact as one of several pandemic-era government programs that are projected to make a big dent in poverty and reach a broad swath of the population. 

When the first credit payments went out July 15, in fact, they lifted the percentage of people who lived in households receiving a regular check from the government to 65% from 28%, according to a recent analysis by the People’s Policy Project, a progressive think tank. Before the child tax credit expansion, most recipients of regular government checks were elderly and disabled people receiving Social Security and Social Security Disability Income payments, wrote Matt Bruenig, president of the think tank.

The fact that so many people now receive checks from the government might serve to destigmatize welfare as benefiting only poor people, Bruenig predicted in a commentary.

“‘Your mom is on food stamps’ works as a taunt because it means she and you are poor,” Bruenig said. “‘Your mom gets a monthly child benefit check’ doesn’t work as a taunt because it just means she has a kid and because the taunter’s mom also gets one.”

The tax credit’s critics on the opposite side of the ideological spectrum have feared exactly this—an expansion of the federal government, with Florida Sen. Marco Rubio calling the credit an “anti-work welfare check.” 

Should Investors Be Skeptical of Good ‘Pitches’?

If you’ve ever been in a position to fund something, chances are you’ve probably been “pitched,” whether it was for an investment, a sales presentation, or a charity fundraiser. But, counterintuitive as it seems, a good pitch actually might make for a bad proposition.

That’s what a team of researchers at Yale found when they used a machine-learning algorithm to analyze real startup pitch videos, where entrepreneurs tried to persuade venture capitalists to bankroll their companies, giving each one a “pitch factor” based on how well the team did at conveying positive emotions and warmth. Then the researchers observed whether the startups got funding, and examined their business performance afterwards.

Unsurprisingly, the presentations that scored a higher “pitch factor”—in other words, showing more passion, enthusiasm, and warmth in their pitches—were more likely to obtain funding, according to the research published last month. But among startups that did get funded, the ones with better pitches actually fared worse over time, the researchers said, and were more likely to go out of business, have fewer employees, or fail to attract follow-up funding. That’s because investors, being more likely to back projects with good pitches, also fund some lower-quality projects that happen to benefit from persuasive presentations, the researchers speculated. 

The algorithm also discovered a massive amount of sexism at work. Among women giving pitches, the penalty for not showing enthusiasm and warmth was nine times greater than it was for men, the researchers said. Not only that, but if a woman and a man pitched together, only the characteristics of the man’s pitch mattered for whether the startup got funded—suggesting women are overlooked when presenting with their male teammates.

The surprising conclusion: Pitches don’t seem to help investors make better investment decisions. Instead, they can induce bias and lead to inaccurate beliefs.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Article Sources

  1. Board of Governors of the Federal Reserve System. "Does the Age at Which a Consumer Gets Their First Credit Matter? Credit Bureau Entry Age and First Credit Type Effects on Credit Score." Accessed August 3, 2021.

  2. Center for Retirement Research at Boston College. "How Much Does Social Security Offset the Motherhood Penalty?" Accessed August 3, 2021.

  3. People's Policy Project. "Two-Thirds of People Now Receive Monthly Benefit Checks." Accessed August 3, 2021.

  4. National Bureau of Economic Research. "Persuading Investors: A Video-Based Study." Accessed August 3, 2021.