Strapped teens

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

Courtney is a second-year student. She has a chequing 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, not even that when you make a purchase, it’s a loan. Her father is an accountant. 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 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 campus. But that card didn’t come with any counseling on how to use it wisely.

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

As your children prepare to go to postsecondary school—a major step in their journeys toward independence and adulthood—you must understand that they may be easy targets for the consumer credit industry. You must do something about it.

Having been bombarded every day with "spend, spend, spend" messages on television and computer, in magazines, at the movies and on the radio, 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.

Unfortunately, by your own spending habits and what you have done to make sure they “had everything,” some of you may have unintentionally contributed to your kids' acceptance of this view of the world. In addition, they 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/university campuses is increasing. More and more college/university students have credit cards, and many have several. The average graduate 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 automobile 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 students 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/university 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 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/university.

Mitsy, an 18-year-old university student, had three maxed-out credit cards. She hung herself. Her chequebook 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 for college or university. Out of sight does not mean out of mind. So what do you do as a parent to prevent your child from suffering any of these consequences?

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 the consequences can’t happen to them. But neither did Jenny or Mitsy. Together, develop a workable plan with strategies that will help them resist the temptations of overspending and consumer credit abuse.

You should help your child form a realistic view of what their lifestyle will be like as a postsecondary student. Today, most 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/university friends. They may be tempted to resort to credit card debt rather than buy into a lifestyle that they can afford. I recently met a family that had more than $50,000 in consumer debt, almost half of which was for five vacations to Disney World. Would the children in that family hesitate to use credit cards to go on March break if they couldn’t afford it?

Once you have come to a shared vision of what your student’s lifestyle must be like, you should build a realistic budget around it. Work with your son or daughter while they are at school 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 I.Q. Many postsecondary 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 uninformed credit card users and the importance of having savings for emergencies.

In the Credit Abuse Resistance Education (CARE) Program, we emphasize the fundamentals of finances to 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 problems that often result. Consider the following tips and techniques.

One credit card is all that your son or daughter will need at college/university for convenience or emergencies.

Use cash, a cheque or a debit card as often as possible, and if you can eat it or drink it, pay cash for it.

They shouldn’t use credit cards 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 bills come, and they should pay the bills in full every month on time.

Having one credit card, staying within their credit limits and paying off the balances on time every month they charge something will prevent them from having to deal with traps like late fees and over-limit fees.

They should stay away from store charges, which often accrue interest on unpaid balances at a higher rate than major credit cards.

Those high-paying jobs they hope to get when they graduate may not materialize. How will they pay off their student loans and credit card debt?

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

The Honourable Judge C. Ninfo is a U.S. Bankruptcy court judge and founder of the Credit Abuse Resistance Education (CARE) program, www.careprogram.us.

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