By Eva Norlyk Herriott
Stepmoms aren’t all evil. On the contrary, Annie Flannigan of Fairfield, Iowa is here to report, they can be—like, cool. When Annie was 14, her stepmom made her an additional card holder on her account and set her loose with her very own credit card, albeit with certain rules and conditions. Annie couldn’t charge more on the card than she could pay off each month with her allowance and the money she made from baby-sitting.
Of course, Annie charged more to her card than she could pay off several times. But with her stepmom’s help, she quickly learned from her mistakes. Today she’s a senior in college and unlike many of her peers, her credit card debt is—zippo.
Annie was fortunate. Her parents early on put a structure in place to help her learn basic credit card management skills. Heather Williams was not so lucky. Like so many others, Heather got her first student credit card while a sophomore in college, when she got an “an offer she couldn’t refuse.” Heather knew little about credit cards, but she quickly became a plastic aficionado. Using credit cards was much more convenient than having to carry around cash or writing checks. Credit card charges didn’t bounce, and using her card just made it easier to have enough money for everything.
Soon Heather charged a great deal of her expenses to her credit card. As the balance started to creep up, she took out another one. The debt ticked up so slowly she barely noticed it—her monthly minimum payment was still comfortably within an affordable range.
Then she lost her regular afternoon job at a local grocery store. Now, without her regular cash flow, her credit cards suddenly became a means of paying for basics like food, gas, or utilities. The debt snowballed, and before she knew it, she was more than ten thousand dollars in debt. Without her job, even the monthly credit card payments became an issue, and Heather eventually defaulted on her credit card debt—again not having any idea what that would mean for her over the long term. Now, at only 26, her credit rating is shot. To fill out just a rental application, she has to put her boyfriend as co-signer on the application, fearing that she will otherwise be declined because of her bad credit.
Unfortunately, Heather’s situation is far more common than Annie’s. Students’ use of credit cards has long been a source of concern, and according to a new report from student lending giant Sallie Mae, it’s only getting worse. Nationwide, more students are using credit cards to pay for expenses, including college tuition. According to the new report, released in April of 2009, student credit card debt has reached record heights, with undergraduates carrying an average of $3,173 in credit card debt and graduating seniors more than $4,100. While many students use credit cards to pay for increasing college tuition expenses and textbooks, about 70% report that they are also relying on plastic for extras like going out for a nice dinner, clothing, and other non-essentials.
Worse, most students are not paying off their credit cards. According to the report, only 17% of students surveyed say that they’re regularly paying off their balance in full, and a full 40 percent always carried a balance forward from month to month. Around 60 percent were surprised at their escalating credit card balance; 40 percent reported charging items, despite knowing that they didn’t have the money to pay off the charges when their credit card bill arrived.
For kids, the difference between sink or swim often boils down to the money management skills they learn before they leave home. Many students arrive at college campuses with little knowledge of what is involved in managing a credit card. Few have any knowledge of concepts like credit rating and credit history, nor of the long-term consequences of racking up excessive credit card debt or defaulting on debt. Most have no idea of how expensive it is to pay off a credit card balance paying only the minimum monthly payment, or how easy it is to get trapped by credit card debt with sky-high default interest rates.
Being bogged down by an overwhelming debt load is a terrible way to start out life. Unfortunately, between student loans and credit card debt, this is the reality for an increasing amount of our nation’s young adults. Parents can make a big difference by teaching their kids basic credit card skills early on. While the idea of letting junior loose with a credit card may not be appealing, you’re better off having your child make mistakes on your watch rather than later down the road.
