Strapped

The secretary to a high school principal admits that she is working with her son, a recent college graduate, to pay off his six credit cards that she knew nothing about.

Courtney is a college sophomore. She has a checking account and a debit card but no credit card. A conversation with her makes it clear that she does not understand anything about credit cards. Her father is a CPA. What will happen if Courtney accepts one of the many solicitations for a credit card that she is bombarded with every day in the mail and on and around her campus?

Jenny, a 28-year-old who just filed for bankruptcy, said that it all started when she got her first credit card and a free T-shirt on her college campus.

In a 1999 story on CNN.com, Robert D. Manning, a professor at the Rochester Institute of Technology and author of Credit Card Nation, stated that the marketing of credit cards on college campuses “now poses a greater threat than alcohol or sexually transmitted diseases.” Things have not improved since 1999. They have gotten worse.

As your son or daughter prepares to go to college—a major step in their journey toward independence, adulthood and a fulfilling life—you must understand that your child may be an easy target for the consumer credit industry.                        You must do something about it.

Teens are already hungry consumers in our competitive consumption society that rejects delayed gratification, blurs the lines between wants and needs and encourages having what everyone else has, whether you can afford it or not. Your children may not have ever learned the fundamentals of financial literacy—things like effective budgeting, the true cost of consumer credit at high interest rates, how hard it is to pay back debt, the need to have savings for emergencies and the importance of a long-term financial plan.

Irresponsible credit card use on college campuses is increasing. More and more college students have credit cards, and many have several. The average graduating college senior has consumer debt in excess of $2,500, and many graduate with credit card debt in excess of $10,000. Most of it is spent on clothes, food and entertainment. The students have nothing to show for it, and they often can’t even remember what they purchased.

The problem is that the consequences of irresponsible use of consumer credit are becoming increasingly numerous and severe. They include students dropping out of school due to debt problems, being turned down for graduate school loans or even for admission to graduate school, losing out on jobs, apartments or automobile loans, paying higher insurance rates and even suicide. And, like Jenny, having to file for bankruptcy. These consequences can ruin your child’s future.

It shouldn’t be any surprise to you that the stress of debt problems can lead to depression, interpersonal relationship problems, drug and alcohol abuse and poor performance at school or at work. If you were a graduate school, student loan lender or prospective employer reviewing the application of a graduating college student with a significant amount of consumer debt (and perhaps a student loan on top of it), why would you take a chance on that applicant? There are many other equally qualified applicants without consumer debt problems. More and more, companies are looking for employees with good judgment. As an employer, would you take a chance on an applicant whose credit report indicates that in at least one area of their life they have not exercised good judgment? Good jobs are too hard to come by today for your child to lose one because of overspending in college.

Mitsy, an 18-year-old college student, had three maxed-out credit cards. She hung herself. Her checkbook and credit card bills were spread out in her dorm room. Her mother said that she didn’t even know that Mitsy had a credit card.

You have worked hard to make sure that no harm has come to your child. You can’t stop now, as they prepare to leave home for college. Out of sight does not mean out of mind. So what do you do as a parent to prevent your child from suffering?

Start with a practical discussion of the consequences and what they could mean for your children’s futures. Like most teenagers, your children will think that it can’t happen to them. But neither did Jenny or Mitsy. Together, develop a workable plan and strategies that will help them resist the temptations of overspending and abuse of consumer credit.

You should help your child form a realistic view of what their lifestyle will be like as a college student. You may have been on a tight budget when you went to college and lived the life of the Poor College Student. Today, most college students expect to continue to live the lifestyle that you provided for them at home, and perhaps even the lifestyle of their new, wealthier college friends. If they don’t have the money for that, they may be tempted to resort to credit card debt unless they buy into a lifestyle that they can afford.

I recently had a family in bankruptcy court that had over $50,000 in consumer debt, almost half of which was for five vacations to Disney World that they obviously could not afford. Would the children in that family hesitate to use credit cards in college to go to Mexico for spring break?

Once you have come to a shared vision of what your a student’s college lifestyle will be like, you should build a realistic budget around it. Work with your teens while they are at college to ensure that they are living within that budget. Ask if it continues to be a realistic plan that meets their needs, even though it may not always include all of their wants.

It is necessary to build up your child’s financial IQ. Many college students who have had credit card problems say their parents told them to live within their means and avoid credit cards, but they never told them about things like the true cost of consumer credit at high interest rates, the traps out there for the uninformed credit card user and the importance of having savings for an emergency.

In the Credit Abuse Resistance Education (CARE) Program, which was founded in Rochester, N.Y., we emphasize the fundamentals of finances to middle school, high school and college students through written materials and live presentations given by bankruptcy judges and attorneys. The goal is to show students why they should choose to avoid consumer debt and the many consequences of the financial problems that often result. Visit the program’s Web site, www.careprogram.us, and consider the following tips and techniques.
One credit card is all that your son or daughter will need at college for convenience or an emergency.

They should use cash, a check or a debit card as often as possible. If they can eat it or drink it, they should pay cash for it.

They shouldn’t use their one credit card to charge anything that costs less than $10.

They should never put anything on their one credit card that they can’t pay for at the end of the month when the bill comes, and they should pay the bill in full every month on time.

Having one credit card, staying within their credit limit and paying off the balance on time every month they charge something will prevent them from having to deal with a long list of credit card traps, such as late fees and over-limit fees.

They should stay away from store charges. They will spend less in the store that way. Store charges often accrue interest on unpaid balances at a higher rate than a major credit card like Visa or MasterCard.

That high-paying job they hope to get when they graduate may not materialize. Then how will they live and also pay off their student loans and credit card debt?

College can be a wonderful and exciting time in your child’s life. Don’t let the temptations of overspending and consumer credit spoil that.

Judge Ninfo is founder of the CARE Program, based in Rochester, N.Y., which teaches students the fundamentals of finances through live presentations given by bankruptcy judges and attorneys who deal with people with financial problems. Their goal is to show you why you should choose to avoid consumer debt and the many consequences and financial problems that often result if you don’t. E-mail him through www.careprogram.us.

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