From anti-credit card posters in college dorms to a recent U.S. Senate hearing, accusations that banks prey on the young people persist. And despite lenders' denials they are taking advantage of the financially naive, both the industry and universities themselves are promoting financial-literacy programs to students.
At its January hearing on card issuers’ disclosure, marketing and billing activities, several members of the Senate Banking Committee took breaks from criticizing banks' practices to relay the concerns they said they are hearing from constituents with college-age children. These parents, they reported, are worried their students — who are inundated with credit card applications from the time they first arrive on campus — will leave school so heavily indebted they will be unable to lease apartments, borrow money for cars and graduate school, or even pass a prospective employer’s background check of their credit use.
Yet, despite it all, there has not been any significant backlash against credit card use, according to Megan Bramlette, an associate at Long Island-based Auriemma Consulting Group, an advisor to the payments industry. The reason: People need credit. She observes that while debit cards are used to the exclusion of credit cards by those terrified credit will impoverish them, such abstinence can actually lower credit scores, potentially endangering employment prospects and raising future mortgage costs. Essentially, not using credit cards can be a different form of credit misuse, and also indicative of a lack of understanding of how to use credit responsibly.
This is why education is becoming a rallying cry for all the stakeholders in students’ futures.
For example, Citibank has created an online education program to raise credit use awareness. Launched in 2000, its Credit-ED Program certifies those who complete the course, making it a useful tool not only for the credit-curious and school administrators, but also for parents. Specifically, it gives parents the option of requiring certification as a condition to co-signing a credit application for their students.
“Ten years ago there was not a lot going on to educate students about money management,” says Marie O’Malley, a spokesperson for the student loan company Nellie Mae in Braintree, Mass. "But today credit is discussed in many freshman orientations, and schools are setting up programs to improve literacy," noting that Nellie Mae also hosts a tutorial on its Web site.
Why do universities care so much about producing financially literate graduates? “Retention,” says Tim Culver, vice president of counseling services in the Denver office of Noel-Levitz, an enrollment advisory firm. The schools do not want to drop students due to their poor finances.
College endowments also stand to lose if well-educated alumni are too impoverished from debt mismanagement to make contributions. Investing in students’ financial well being early could help fundraising later on.
At Texas Tech University concern for students’ debt loads and their general unpreparedness for handling their financial lives led to the creation of an on-campus financial planning service, Red to Black. It pledges ‘to keep students in the black and out of the red.’ The program has turned into a template for other universities, such as Ohio State, who are similarly concerned about improving their students’ money-management skills.
“We offer one-on-one peer counseling (and make numerous presentations each year) to help students find their footing,” says Dorothy C. Bagwell, associate professor of personal financial planning and director of the program. Though the program began in 2001, calls from students increase each year. She adds, “Financial illiteracy remains an issue for young people.” Each new freshman class seemingly refreshes the need for the program.
Stephen Hunsaker, the program’s current coordinator and a financial planning student at Texas Tech in Lubbock, says over the past three years he has noticed his student clients fall into two categories: “There are those who give no thought to the ramifications of their actions and have maxed out their student loan debt [and credit cards] on cars and clothing. And then there are those who are so afraid of credit they have none, but they are also struggling because they fail to take advantage of the financing options available to them to pay for school.”
He thinks both types of students bring many of their misunderstandings, along with their unawareness of the need to budget, spend and borrow wisely from home. “Kids seem to be mimicking their parents, a lot of whom are overextended themselves.” But at least the parents have jobs, he observes. “Too often kids just see the spending side of things not the earning. Many just do not realize credit is not free money.”
“Money is the last big taboo. Our parents can talk to us about sex, but in most families there is limited to no talk about managing money,” adds Hunsaker.
That explains the title Gail Fialkow, a certified financial planner with Capital Planning and Investments in Fairfax, Va., uses for her presentations to students in the Fairfax County Public High Schools: ‘What My Mother NEVER Told Me About Money.’
“It is an outgrowth of the meetings I have had with my clients’ college and high school-age students about the financial pitfalls they may encounter along with their college education,” she explains. It is intended to arm them with the basic financial facts they need to make good decisions.
The debate over credit cards on campus is not likely to end anytime soon. During the Senate hearing on the matter last month, committee members said they are may propose some measures in the near future. They seemed particularly focused on recasting disclosure statements into plain English. But proposals to rein in aggressive marketing tactics to students have also been made.
With such high level attention, along with growing online resources and on-campus efforts to improve financial literacy, future college graduates who take on too much debt may no longer be able to claim it was because they did not know better.
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