Research proposal

From Consumer Alert

College kids and credit cards have been in the news lately, following a June 1999 report by the Consumer Federation of America (CFA) that blasted card issuers for luring unsuspecting students into debt. Sociologist Robert Manning, the author of the CFA study, was quoted in a Reuters story as saying: "The unrestricted marketing of credit cards on college campuses is so aggressive that it now poses a greater threat than alcohol or sexually transmitted diseases."

Most news stories took cues from Manning and touted the risks of credit cards for students. Articles used phrases such as "pushing cards on cash-strapped college students," "addicted to plastic," "the rubble of financial ruin," "financial shackles," "dark clouds of debt." Some media events linked student suicides with credit card debt. Several lawmakers--at the federal and state level--responded by calling for curbs on lending to those under 21. Some legislative proposals would not allow students under 21 to apply for a card or to have the credit limit raised without parents' permission. Other measures would restrict the marketing of credit cards on college campuses.

The now common practice of card companies' offering students credit cards is being portrayed as a way to lure students into an addiction to piling on debt they can't handle. Many college students--and their parents--however, tend to take a more balanced look at the issue and consider not just the risks but the rewards.

There are a lot of reasons why parents of away-from-home college kids want them to have credit cards. Parents have greater peace of mind knowing their child won't be destitute if there's a budget shortfall during the month. If student loan disbursements are held up for longer than expected, students can survive by using their credit card for expenses.

In the past, parents had to handle those crises by such means as wiring money that has to be picked up or sending a money order that needs to be cashed.

Students also may find credit cards invaluable for travel home and for unexpected expenses--to purchase airline tickets if there's a family crisis, or if a student gets stuck in a strange city overnight because of canceled planes, or in case of a car breakdown.

Getting a credit card in college is also a way to build a credit record that can allow a graduate who gets a full-time job to qualify more readily for a car loan and then, perhaps later, for a mortgage.

All of those benefits, of course, don't come without risk. Just about every product or service has trade-offs involved--that is, an upside and a downside. For instance, using a car for transportation also means that there is a risk that the person will get in an accident. Renting a video can entail a modest financial risk--forgetting to return it can mean hefty late fees. If a person misuses a product or service, it almost always increases the risks, whether those risks are physical or financial.

Misuse of credit cards, not the fact of having a card, may cause some students to get in debt over their heads. If the student doesn't have the income to pay more than the minimum payment due and continues to pile up charges on the account, that can present real problems. Paying late on a credit card bill not only may warrant a hefty late fee, but also can put a blot on a person's credit history.

Blaming credit card issuers for some students' credit troubles, and calling college credit card misuse a bigger problem than "alcohol and sexually transmitted diseases" are guaranteed to get headlines and gain some lawmakers' support for new restrictions on card issuance. However, such hyperbole won't help in getting students on the right track in using credit cards responsibly.

Students going off to college are usually 18 years old. At that age, they can vote and go to war. They are also making hard decisions about school and work, relationships, and goals. Increasingly, too, students at that age are obligating themselves for huge student loan debts. It's fairly common now for graduating seniors to be faced with $40,000 to $50,000 in student loans to repay once they start working.

College is a place and a time that prepare students not only for earning a living but also for learning how to live independently. College provides students with critical lessons in personal responsibility and in setting limits--attending classes, getting up in time for morning classes, studying for exams and finishing assignments, taking care of food needs and laundry, balancing work and play, and a host of others. Cutting classes, cramming, not handing in term papers, partying instead of studying, are behaviors that may get students off-track in their college careers, unless they learn from those experiences. For college students, learning how to manage money--to set spending limits and to live within one's means--is a necessary part of their lives away from home.

Some parents try to prepare their kids to handle personal finances way before sending them off to college. They may teach their children at an early age how to "budget" their allowance or put gift money into their own savings account for a special purpose instead of spending it right away. With teenagers, parents may help them decide whether to work part-time and how to budget that income. As students start preparing for college, experts advise parents to include in the money-management discussions sessions on credit card use, including information on finance charges, fees, and minimum monthly payments. Working through some hypothetical examples can bring the point home about the need for responsible use of credit cards.

Few high schools help prepare teens for living on their own, whether working or attending college. Some schools may include a personal finance course as an elective, but that may be all. Yet innovative programs that integrate personal finances with teenagers' interests are available in some high schools and increasingly on the Internet.

Colleges are beginning to find that orientation programs can include "survival skills," such as learning how to handle money, including credit card debt. Special student presentations on credit card use and abuse can be effective in pointing out some of the pitfalls.

Early parental guidance on money management, supplemented by high school and college programs, can help prepare young adults to use credit responsibly. How well they learn those lessons will be critical. They'll be on their own soon, and soon, too, their only "classroom" will be real-life experience.