9/30/2008

College Kids and Credit Cards

Did you fall prey? Did they get you already? Was the lure of the 2-liter of Coke / Frisbee / T-shirt / hat too much? Did you sign up for a credit card on campus? These vultures are impossible to miss on college campuses today. Tents up and down the main thoroughfares, tables lining the busiest walkways - all hoping that their combination of peer pressure, free stuff, school pride, and constant bombardment will get you to do something that you would not have normally done. Oh yeah, it's warfare out there. Psychological warfare - And it works.

The university gets a big payday out of it, the credit card company gets the fees out of your transactions, the slouch signing you up gets a kickback per app, and you get the promise of all the magic and wonders that come with carrying their card. For college freshman, it is particularly troublesome - new place, new people, new experiences, new, new, new, and no parents.

Did you get one? Did they sign you up so that you can "get a house one day and take care of your family"? Or was it the line about "how great they are for emergencies"?


If the answer is yes, then here is some advice:

Cut that sucka up.


Now why would I say that? Let's take some of the justifications head on:

They can get an early start on "building their credit". By the way, that's a game that you do not have to play. This game of basing all of my life's decisions on how it will affect my credit score - totally unnecessary. Much like that group of guys in the clearing by the Quad, the ones playing Ultimate Frisbee. Sure, you can play, but why? Stay out of debt, pay cash for a car, you can even get equally good terms on a mortgage by using manual underwriting - all without the goofball credit score game.

If they pay it off one time, and never spend more than they have... Yeah, stop right there. we don't even need to finish a sentence that was started with an IF that big. Recent studies reveal the reality of what happens on campus. 1 in 4 students leaves college with more than $5,000 in credit card debt. 1 in 10 top the $10,000 mark. This is big time debt for kids with likely little more than a part-time job. The Zogby study also goes on to say that 52% left college with any amount of credit card debt. Odds don't look great, but say hello to your three new roommates - Stress, Shame, and Guilt.

But what about emergencies?! They'll need a credit card to rent a car, or .... Yes, that's what we want to do in an emergency - create debt. Or, maybe not. Debit cards will handle payments in a pinch, even renting a car, and shopping online. Your risk for high dollar emergencies is much lower while in college than later in life, so stop sweatin'.

It's a great way to teach responsibility... Sure, sure it is. They'll learn that the hard way for sure - see previously noted Zogby study. Why am I so sure that they are set up for failure? How on Earth is this a recipe for success?! An unsupervised kid with questionable at-best personal finance savvy and experience, in the land of impulse, surrounded who knows who's kids. This kid needs a credit card like he needs to be hanging out with that kid down that hall who's drinking his way out. I'm all for learning by doing, but you can learn the same lesson without creating debt.

...Besides, they are legal adults and can make decisions for themselves. Of course they can make decisions for themselves. I'm not disputing that. But let's try and make the right ones. And technically, you are over the age of 18. You kids felt that magical transformation that took place on your eighteenth birthday - that sudden surge of maturity, that rush of knowledge and sophistication, that instant ability to budget and handle money like none other. No? Really? Huh... that's strange.

So now that we've shot that credit card full of holes, then what exactly is the plan?

Simple. Get your student body over to the local credit union and open up a checking account that includes a debit card. Then, go get you this thing called a job. There are tons of them on and around campus - you likely won't have to go far. You now have a means for income and outgo. Now you just need a way to manage it. That would be a budget. A simple one in excel will do fine. Lets review your homework quick:
  1. checking account / debit card
  2. part-time job
  3. budget
1 and 2 you may already have done. Number 3 I doubt, but maybe you'll surprise me. If you are having trouble managing your money using plastic, then we'll add a part B to number 3: a cash envelope system. You can't run up a big bar tab when you take a finite amount of cash. That whole "don't spend money that you don't have" philosophy that the credit card mongers brow-beat you with is great in theory. Problem is, their chosen means of payment will let you do just that: spend what you do not have. You can't spend cash that you don't have in hand.

Think I'm nuts? Try it. Seriously.

Give this plan the old college try. Give the budget a few months to work, and give yourself a few months to get a clue. It's ok if you screw up and you will screw up. But you have to keep going. It's not ok to screw up and give up. You have to acknowledge your mistake and make adjustments going forward. That's called learning, and I'm pretty sure that's what you are there to do. Besides, you can get a credit card anytime. Seriously - they hand them out like candy. Many times along with candy! Or Soda. Or...


2 comments:

Mr. ToughMoneyLove said...

Wow - You are taking a radical minority position here - against the credit card tide and credit score obsession. I agree 100%. I had two kids in college and a third there now. No cards for any of them. Thanks for this refreshingly unique post.

billspaced said...

Great contrarian advice! Wish I had listened to wisdom like yours when I was 18... :(

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