October 2004
The Credit Crush: Are Young Adults At Risk?

   In October 2002, I wrote a column entitled, “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 games.

   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 credit cards.

   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.