When it comes to teaching young people about credit, Alicia Sasser Modestino jokes that adults are about as wary of the topic as they are of sex ed: “Adults are afraid if they teach kids about it, they’ll want to use it.”
But using credit – wisely – is crucial to economic success. While good credit can open doors to reasonable rates on mortgages and car loans, for example, poor credit can cost the average Bostonian $238,000 in interest and fees over a lifetime.
So how can residents acquire good credit habits early in life? Education and support are key.
This is what Modestino, an economist at Northeastern University’s Dukakis Center for Urban and Regional Policy, found in her recent study of the Boston Youth Credit Building Initiative (BYCBI), a one-year credit-building program for working young adults ages 18-29.
Launched in 2016 by the Mayor’s Office of Financial Empowerment in collaboration with Working Credit NFP, funded by Citi Community Development, the initiative offered young people a one-hour credit workshop, ongoing financial coaching, and access to a credit-building loan and savings product. Modestino’s research found that BYCBI participants were more likely to establish credit and improve their credit scores, with the greatest impacts seen among younger participants (18-24) and African-Americans.
The report, An Evaluation of the Boston Youth Credit Building Initiative, compared the outcomes of program participants to those of a control group and found that:
- within the first 6 months of the program, the share of participants with no credit score dropped 11 percentage points relative to only a 4 percentage-point drop for the control group
- within 18 months, the credit scores of participants who actively complied with the program were 37 points higher than those of the control group
- program compliers were able to increase their available credit by $2,881 on average compared to the control group
Interestingly, the study also found that improvements in self-efficacy – the belief in one’s ability to achieve specific goals – drove the positive changes in participants’ financial behaviors and credit scores.
At a recent conference of Boston Builds Credit, a citywide initiative to empower Boston residents to build prime credit scores, stakeholders discussed the significance of these findings – and the financial challenges young people face.
“Young people have misinformation about credit,” said Tiana Bonner, director of the financial empowerment program at Inquilinos Boricuas en Accion (IBA). She pointed to influences ranging from rampant consumerism to hope in lottery tickets. “Using credit as a tool – that’s the message they’re not getting.”
Reflecting on his own time growing up in Roxbury, City of Boston Economic Development Chief John Barros recalled that the first financial tip he received was “Don’t get a credit card.” But the advice didn’t go any further.
“For young people, too often it’s the ‘don’t do,’ and we stop there,” he said. “Instead, there should be a conversation about the risks and benefits and the opportunities [of credit].”
In a series of interviews conducted with Boston Builds Credit partners, Brandeis University researchers found “unanimous interest” in expanding credit-building work among young people. In the near-term, Boston Builds Credit plans to embed financial coaches at Bunker Hill Community College and Roxbury Community College to make information about credit more accessible to young people.