Credit Cards on Campus

It's not only possible — but crucial — to teach teens good money habits before they go to college

For a generation where "cash is so five minutes ago" and 18-year-old basketball stars flout $90 million sneaker deals, old school values like saving and long- term planning can seem pretty fuddy-duddy. But with debt and personal bankruptcies for young adults rising at alarming rates, teaching financial literacy to our kids before they go off on their own could save them from a future of stress and frustration.

"Plastic Money" Doesn't Come Cheap

Giving young people unfettered access to easy consumer credit — before they have demonstrated the ability to manage a personal budget or obtain a full-time job — can create a host of emotional and psychological problems. The unrestrained use of "plastic money" can fundamentally undermine teens' cognitive ability to understand the relationship between income and standard of living. Poor payment habits can also lead to abysmal personal credit reports with shocking results for naive twenty-somethings: rejections for apartment rentals, home mortgages, auto loans, car insurance, graduate school loans, professional school admission, and even jobs.

Twenty years ago, who could have foreseen that college graduates would have their consumer credit scores scrutinized as carefully as their GPAs? So much for American Express saving the day. (Do teenagers wonder if Jerry Seinfeld has a problem paying his credit card bills?)

With credit lines and material expectations progressively increasing on American campuses, many teens now view consumer credit as a social entitlement rather than an earned privilege. A recent Citibank/Sony Visa campaign promotes credit cards as the "Currency of Fun," offering electronic gadgets as rewards for high levels of purchasing — implying that the more you spend, the more "fun" you will enjoy and the more "toys" you will receive. Conversely, limiting access to material goods is portrayed as depriving students of their right to pursue happiness through shopping.

Credit card companies encourage fantasies of easy money because students are so profitable: teens have financial naivete, high material expectations, responsiveness to relatively low-cost marketing campaigns, high potential earnings, and future demand for financial services. Not surprisingly, companies are approving credit lines for students at progressively earlier ages, including high school seniors. Most college freshmen now receive their first credit card before taking their first mid-term exam. Cross-marketing with retail affiliates (such as Visa-issued Gap cards) make impulse shopping even easier.

The Campus Gold (and Platinum) Rush

Since the onset of banking deregulation in 1980, the increasingly concentrated U.S. financial services industry has become more dependent on high-interest revolving credit card loans, which are about three times more profitable than the average banking product. The top 10 banks now control over four-fifths of the credit card market (compared to less than one-fourth in the late 1970s), and these trillion-dollar conglomerates are less cautious with their lending policies than the community banking systems they supplanted.