In the late eighties when I was an academic dean at The King’s College in New York, my office regularly received stacks of postcards from credit card companies requesting that I place these postcards in each student’s mailbox. The postcards were enrollment forms offering credit to college students “for use during emergencies,” “to help build your credit history,” or, more incongruously, “independence.” Instead of student mailboxes I placed these credit card invitations in the academic dean’s waste basket.
In the late eighties credit card companies began targeting college students as a new, growing, and potentially profitable market demographic. Credit card companies offered credit with spending “limits” like $8,000 or even higher, zero or reduced interest for the first year, and acceptability at all kinds of businesses. Of course these companies make money when people carry debt incurred on their cards, a fact that makes college students and easy credit an appealing mix.
Unlike some financial advice gurus, I’m not against credit cards. My wife and I have a few of our own. But if older adults are sometimes tempted to spend-via-credit beyond their means, how much more so younger adults whose financial skills and experience are at best limited?
I know a couple, for example, who spent the first five years of their marriage paying off fairly substantial credit card debt that one of them had incurred during college. They sought help through Christian oriented financial advisors like Dave Ramsey, identified their goals, worked hard and acted with self-sacrifice and discipline, paid off their debt, and celebrated with their friends when they emerged free from the wrong kind of debt. Now they are purchasing their first home. That’s a financially stressful story turned success story. I salute them. Unfortunately, many young adults do not possess the self-discipline to do the same.
Most college students, even if they are working, are not earning sufficient funds to make them attractive consumers. But they still possess two important characteristics that credit card companies require: an economically bright future, and parents who pay off their debts. So the downside for the credit card companies offering easy credit to college students is lowered to an acceptable risk with a potentially big payoff. Credit card companies know that only 20% of college age users pay down their balances each month, while 67% carry a balance from month to month incurring interest charges, and about 11% eventually cannot make their payments. In all these scenarios, the credit card companies win (make money) and the college students lose (pay more for their purchases with added interest than the purchases would cost with cash, or take on more debt and thus more interest).
While I do not necessarily like the idea that credit card issuers target college students, I cannot condemn them for working legally within a free economy, allowing adults—even if young—to make their own decisions. Responsibility for personal financial well-being rests with the person in this case not the corporation or the public.
At Cornerstone University we throw away bulk mailed credit card enrollment pleas that have been sent to any of our offices. Of course we cannot throw away those enrollment cards that are individually addressed to given students, for in this instance the card is a legally protected piece of the United States postal system. But when we can, we toss the stack, for we believe the choice to acquire a credit card is something rightly in the hands of our students, along with possibly their parents.
Now credit cards can be acquired online. Free applications, no annual fee, no transfer fees, “increased buying power,” “a cushion for emergencies,” “ability to shop online,” or “protection for your purchases,” it’s all online, just a click or two away. But the danger of financial difficulty, possible bankruptcy, and financial ruin via too-easy credit is still real.
The moral of this story is, like so often in a capitalistic system, caveat emptor…let the buyer beware. If a college student is going to buy credit, he or she needs to understand the extent of the financial risk involved, needs to demonstrate the maturity to handle credit, needs to be responsible for paying for his or her own debt, and should as a matter of practice avoid using credit cards.
© Rex M. Rogers - All Rights Reserved, 2006
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