Credit Card Debt: It’s About Responsibility, Not Math

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When I read this Business Week article about how the Ford Foundation and the Public Interest Research Group (PIRG, great meaningless name and awesome acronym) were setting up tables on college campuses to warn college students about the dangers of credit cards, I smiled. I have nothing against this and I like the fact that credit card companies are often prohibited from going on college campuses to hawk their cards. I understand that people need to be educated on everything, including predatory lending, risks of credit and all that mumbo jumbo, but at some point the line has to be drawn.

I have to believe that college kids are smart enough (they did get into college right?) to figure out how credit cards work. It seems to be that the issue here is about responsibility, not simple math. You borrow money, you need to pay it back. If you pay it back within the grace period, you borrow for free. You don’t, you pay interest. It’s simple. The question is whether you can be responsible with it. You can’t overdraw your wallet, but you overdraw your bank account.

Can the PIRG really teach students, who have had their first taste of freedom, to be responsible? You can’t stop underage drinking, drugs, and rock and roll in college… you likely stand no chance of stopping credit cards unless you teach some responsibility and they’ve been trying to do that for ages.

{ 5 comments, please add your thoughts now! }

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5 Responses to “Credit Card Debt: It’s About Responsibility, Not Math”

  1. Barry Broome says:

    Been saying the same thing myself. They should spend much more time teaching personal finances in schools and colleges. This is one of the most important issues people should be educated about. But i doubt much will change.

  2. Debbie Beukema says:

    Well, actually, there is a lot more one can learn over the simple basics. For example, not everyone realizes that you pay interest not on the difference between your payment and the balance, but on the earliest charges. You effectively pay a lot more because those earliest charges can stretch back months/years. Also, not a lot of folk know that the cc companies can change your interest rate based on your payments (or lack thereof) to other creditors. Also, a lot of people don’t understand cash advances very well. There is usually a daily calculated very high interest rate on the cash advances, and unless you pay your balance in full, the cc company will apply your payment first to your regular purchases and only after to your cash advance balance. With these kind of maneuvers, it’s really easy to get in over your head with just a few months of slackness… not really meaning to get massively into debt but being on a debt wheel… and not really having much to show for it.

    I think it’s a good idea for these guys to share a little info, if only just to counteract the massive marketing the students are otherwise exposed to. I’d also like to see them address the idea of living beyond “monthly payments”. What I mean is that so many Americans base their purchasing not on the actual price of an item, but instead on the monthly payments… some people call that leaverage. I call it the road to serfdom.

  3. kitty says:

    “I understand that people need to be educated on everything, including predatory lending, risks of credit and all that mumbo jumbo, but at some point the line has to be drawn. ”
    I have trouble understanding that college kids cannot understand that a) if they borrow money they always have to pay it back, so borrowing cannot increase what one can afford – this seems like common decency to me b) if they don’t pay their credit card bills in full the interest they’ll pay is much greater than what they can ever earn in the bank, so this increases how much they pay for the purchase. Those who had college algebra should also be able to understand compound percentages – college algebra textbooks have examples and formulas. Those who haven’t had college algebra should still be able to understand that 15% they pay is greater than taxable 5% their money can earn in a bank. c) nobody gives something for nothing, so if credit cards extend credit they hope to make money off you.

    I grew up in Soviet Union, so I certainly had no finance education whatsoever. My parents still had problems with English when they got their first credit card, so they certainly couldn’t read all the mumbo jumbo in the cardholder agreement. But we could read the numbers in a little table showing the percentage one pays if one doesn’t pay full bill by the end of grace period. The same percentage is shown on all bills as is the due date. So how come people from a communist country could understand that credit card bills need to be paid in full by the date printed on the bill and American students need special education for it?

  4. SavingDiva says:

    Maybe the presentations will help some kids. When I was 18, I didn’t totally understand the grace period thing…or what a good interest rate was…however, I did realize that I didn’t have any money, so I shouldn’t buy things.

    I think the main thing the presentations should cover is if you only pay the minimum balance, how long will it take to pay back the money and how much interest you will pay.

    I also agree with the above commentors….you just have to make these mistakes for yourself…

  5. You are absolutely right. This needs to be taught in a classroom setting. Certainly, a percentage of these kids will still make the same mistakes even with the education, but I am positive that a few who would have gotten in over their heads will avoid the angst with some schooling.

    I didn’t know much after leaving high school, but my family instilled these three lessons in my head, and they stuck (and it is really all you need to know as a college kid):

    1. Never spend more than you make…even in college. If I didn’t have enough for pizza and beer, I either didn’t buy it or worked extra hours.

    2. Always save 10% of your pay. I did this as a high schooler and built a nice cushion for later years or college expenses.

    3. Let the power of compounding work for you…or against you. This one is critical for young adults. Credit card interest can kill you. I use the example about buying a new stereo on credit. If you only make the minimum payments each month, it takes almost 14 years to pay for that stereo. Sometimes that gets young adults to listen.

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