During the pandemic, states implemented consumer protection and safety net policies to alleviate economic pressures caused by COVID-19, including job loss and bill payment difficulties. These policies may have been crucial for young adults, who have fewer resources to respond to financial emergencies and face greater challenges getting back on their feet. These challenges may be even greater for young adults living in communities of color, who have inequitable access to affordable credit and wealth-building opportunities.

This report examines whether state-level consumer protection and safety net policies helped young adults (ages 20 to 29) stay current on their credit card bills and preserve good credit health—a crucial financial lifeline. I found compelling evidence that utility shutoff moratoria and extended unemployment insurance (UI) programs improved young adults’ credit health. Despite these gains, significant and persistent community-level racial disparities in credit health remain between young adults living in communities of color and those living in majority-white communities.

Why This Matters

Young adulthood is an important time to establish financial security. However, economic pressures often pose challenges for people in this age group, making it harder for them to effectively weather a recession. Additionally, persistent structural racism has deprived residents of communities of color of essential supports for mobility and recovery following a recession, potentially widening the gap between them and their peers in majority-white communities.

Recovery policies implemented during the pandemic alleviated poverty, food insecurity, and material hardship, offering additional resources and protections for families. Given young adults’ unique vulnerabilities to recessions and the potential for community-level racial inequities to widen postrecession, my focus was to understand the effectiveness of pandemic-era policies for young adults starting their financial lives and whether these policies prevented widening inequities across communities.

What We Found

• During the pandemic, credit scores steadily improved for young adults living in all communities, including majority-white, majority-Black, majority-Latinx, and majority-Native communities. Evidence suggests community-level racial disparities in credit scores declined between young adults living in communities of color and those living in majority-white communities from 2020 to 2023, although this reduction was very small in magnitude and most pronounced in 2020.
• Credit card delinquency trends for young adults in communities of color and majority-white communities mirrored each other during the pandemic, with substantial declines in 2020 followed by increases above prepandemic levels in 2022 and 2023. However, in majority-Black, majority-Latinx, and majority-Native communities, delinquency rates were nearly double those in majority-white communities, and these disparities widened from February 2020 to August 2023.

• Further, state policies, such as utility shutoff moratoria and extended UI programs, may improve young adults’ credit and debt and help them weather economic downturns. During the pandemic, state-level utility shutoff moratoria marginally improved young adults’ credit scores and decreased their credit card delinquency rates by 2.2 percent. Similarly, extended UI programs led to improvements in credit scores and declines in delinquencies, with 13-week programs linked to more significant improvements for young adults living in communities of color.

These findings suggest that state-level consumer protection and safety net policies likely helped young adults weather the pandemic recession, easing bill repayment pressures and bolstering economic resources. This support likely enabled young adults to stay current on bills and preserve strong credit profiles.

Despite these positive effects, enduring community-level racial disparities in credit health persisted between young adults living in communities of color and those in majority-white communities throughout the pandemic, showing signs of widening by August 2023. This could signal that young adults living in communities of color could be falling further behind their peers in more affluent communities.

Effective policy measures to support young adults during recessions likely involve tackling structural disparities in wealth and credit between communities of color and majority-white communities while enhancing young adults’ resources and resilience against recessionary pressures.

How We Did It

This study analyzed longitudinal consumer credit data for more than 850,000 young adults ages 20 to 29 from February 2020 to August 2023. It used descriptive regression analysis to examine credit and debt trends and employed a staggered difference-in-difference design to gauge the impact of state-level policies on young adults’ credit health.