The Credit Crush: Are Young Adults At Risk?
In October 2002, I wrote a column
“Is Your Student Thinking About A Credit Card?”
The article focused on how students could find the right credit
card for their needs and warned of potential pitfalls in not
researching available credit cards first. Unfortunately, the
pitfalls appear to be coming greater. Because the credit card
market for working adults is no longer growing, credit card
issuers are now targeting college and even high school students.
Marketers set up tables right
on campus and aggressively hawk their credit cards to the returning
student population. According to the Jumpstart Coalition for
Personal Financial Literacy, 58 percent of college students
reported seeing such tables at work during a period of two or
more days within the first month of the school semester. Here
in Wisconsin, Camp Randall Stadium in Madison is infested with
credit card marketers prior to University of Wisconsin football
The marketing pitches are apparently
working. According to student-loan agency Nellie Mae, more than
83 percent of college students have at least one credit card.
Incredibly, more than 47 percent of undergraduate students carry
four or more credit cards.
There is reason to be concerned
about the high level of credit card ownership by our young adults.
Jumpstart has laid out some warning signals. First, the average
undergraduate carries a credit card balance of just over $3,000,
and half of all college students do not pay off their balances
in full each month. This, of course, often means the students
are paying high interest rates on the balance. Furthermore,
in the past decade, bankruptcies have increased 50 percent for
persons under age 25.
Also according to the Jumpstart
Coalition, surveys demonstrate high school seniors know less
about credit cards, insurance, and other personal financial
basics than they did five years ago. They found, on average,
seniors could answer only half of the financial literacy questions
correctly. Yet, nearly one-third of high school students use
Students are adding to their debt
load as the cost of education soars. It’s really not surprising
that students are tempted by credit cards with teaser rates
of 5 to 7 percent because the average education debt carried
by a graduating student is $17,000 upon graduation. These teaser
rates usually increase to 20 percent or more, particularly for
those who miss payments or receive cash advances. Students who
miss payments or make late payments not only get charged higher
interest rates, but they can also pay significant late fees
each billing cycle.
If your student is interested
in a credit card, encourage him or her to ignore the marketing
pitches. Rather, check out http://www.bankrate.com/brm/credit-card-advisers/br_cardbestcc.asp.
This site will help you find the card that best works for you
or your young adult. You may also check out my October 2002
column at http://www.wecnmagazine.com/consumer/2002/ccpoctober02.html
for helpful advice on how to choose the best credit card.