Credit Card Debt Management

Every once in a while, I am reminded of just how firmly entrenched in the 21st Century my two-year-old is. Take, for instance, the time he pointed to a framed gold record on the wall of Hard Rock Cafe and called it a “big movie.” Or the moment he decided that daddy was no longer at work to “make money,” but he was instead “making cards”. That’s when it hit me. This kid sees his father, mother and everybody else swipe cards in the checkout line. In our case, it is primarily debit cards, but he gets the concept that plastic is king in this world. Oh boy, do we have a big responsibility.

I am a firm believer that it’s never too early to start education on the basics of life. We’re working on getting our toddler to chew with his mouth closed. Seriously, and it’s working. We also have a money jar where he can save his cash, watch it accumulate and spend it eventually. This is a very rewarding lesson in savings, as the highly visual 2-year-old loves to watch his jar fill with coins he found in the cushions, the car, the floor, my purse and pockets. It does seem, however, that this money jar will in the very near future be a completely irrelevant and inadequate means of financial education. How soon can we set him up with a debit card?

Millionaire Mommy Next Door has some great tips on how to make money management a family affair. The post talks about our recurring theme that the education system has largely failed to implement formal financial education for high schoolers, so parents, the ball’s in your court. While the MMND blog has some great, practical advice for financial management, it shies away from credit cards.

Regarding plastic, check out my post on how to build a teen’s credit history. Each of the four credit building techniques described there will also serve to educate kids on things like payment due dates, late fees, credit limits, over-limit fees, interest charges, etc. Elementary-aged kids might benefit from parents putting grocery money on a gift card and the entire family can team up to ensure that grocery spending stays within those bounds. This helps kids grasp the concept of needs vs. wants, delayed gratification, budget-conscious shopping and spending limits - all very important lessons for an up-and-coming responsible credit card user.

Some parents may want to tell their kids to avoid credit cards altogether. I have come to realize this is simply not practical. Just like you have to talk to them about weightier issues like drugs and sex, you have to talk about credit cards because eventually someone is going to offer them a credit card. Parents just want their children to fare even better than they themselves and avoid making the same mistakes. But when I was 18, I thought my parents were about the most ignorant, uncool people on earth (now I know different). I didn’t listen to them! So instead of telling kids to “just say no” to plastic, make sure they are learning the mechanics of how it works and how it can work to benefit them. Teach it with your words as well as your example.

We’ve discussed the Utah State University study that showed debt has a tremendous effect on the health of a marriage. Another interesting highlight from the study was the fact that couples with a high school degree only were more likely to bring debt into the marriage than couples with a college degree.

According to the Journal Extension publication of the study:

We found that 24% of husbands and wives in the study with a high school degree brought no debt into the marriage, whereas, 36% of husbands and wives who had at least a bachelor’s degree brought no debt into the marriage. …other research shows that, on average, college graduates earn more money than high school graduates. Therefore, college graduates may have been better able to pay down their debt prior to marriage, even if a portion of that debt was a result of paying for their college education. It may also be that college graduates, through their coursework, are provided with more opportunities to gain knowledge about finances and debt management than high school graduates who marry.

Is this fair? This is further proof that students need a better education on all things financial - especially credit cards - before they graduate high school! One might think couples with college degrees might be more likely to bring debt into the marriage because of student loans. However, this type of debt made up only 23 percent of all the different types of debt brought into marriage, ranking it third. The top two types of debt brought into marriages were automobiles and credit cards at 55 percent and 48 percent, respectively.

So here we have a study showing us that debt has a profound effect on marriage and more debt is brought into marriage by high school graduates. There has been a historic and persistent lack of instruction on all things financial (and particularly debt management) within the education system. And we wonder why the divorce rate is so high? Money fights are most common of all marital fights, according to the study! It is time for teachers and parents to stop shying away from money talk and instead make money management the new conversation topic du jour.

The use of credit cards has gone from 67% in 1998 to 75% presently. Students are falling victim to marketing schemes offering free t-shirts, free food, and many other gimmicks to collect credit card applications or even just permission to mail out credit card apps at a later date. An article by Baruch College in New York targets education as the primary reason for rising student credit card debt.

Today, far more college students are racking up debt than ever before. The primary reason is the education system, which in many cases does not provide sufficient or any resources for students to educate themselves on personal financial management.

It does seem that, aside from predatory lenders themselves, parents and educators are most at fault for the student debt crisis. And it is a crisis. One that has some students dropping out of college or committing suicide to escape their burdens of debt. It is shameful.

Yours truly was once a college freshman without a clue on anything financial, beyond how to write a check - and I was homeschooled! For skeptics out there, the homeschool education I received was very comprehensive. But for some reason, my parents omitted financial education altogether … and education on the Greek gods, for which I later chastised my mother while prepping for the Humanities mid-term exam sophomore year. But I digress.

My parents were not unique, but were actually the norm, unfortunately. Like many other naive college students, I ran off to college and got a credit card freshman year because it was being pitched by a popular kid, came with a free t-shirt and all my friends were doing it. What about credit card marketing practices, debt consolidation, interest rates, Universal Default Policy, credit limits, credit reports, FICO scores, the importance of paying all bills on time, and so on?

Is it possible that there is a lack of adequate financial education in high school because parents and teachers consider it irrelevant and want to discourage credit card usage at such a young age? There are some parents who allow their children some first-hand experience with the credit card game while still in high school, with limits and abundant supervision. This is necessary because there does seem to be a lack of education in the school system and ultimately, the buck stops with parents. If parents don’t educate their children, someone else will after they leave the nest - and it may not be the messages you want them to hear.