Ian is 17 years old, bright, a good student who finished high school a year early. But he’ll be starting college with a big disadvantage: $10,000 worth of credit card debt.
Ian’s last name isn’t included in this article in order to protect the family’s privacy. But the situation is real, and one faced by many teenagers and young adults.
Why is credit so easy for young people to get? Because creditors know that, in most cases, the parents or grandparents will bail the kids out if they get into trouble.
“That’s a big mistake,” says Julie McAdory, who is Mississippi education director for the Consumer Credit Counseling Service (CCS) of Greater New Orleans and branch manager of Hattiesburg CCS office. “Young people won’t learn how to manage money themselves if they are not held accountable for their actions.”
In January 1998 McAdory met with some students at the University of Southern Mississippi (USM), and was shocked at their lack of understanding of basic personal finance issues. College students know MTV, but they haven’t a clue about the APR (annual percentage rates) that they are paying on credit cards.
Some examples of the kinds of comments McAdory got from the students are:
“Isn’t having bad credit better than having no credit rating at all?”
“My parents tried to tell me how to deal with my personal finances, but I don’t listen to my parents.”
“I’ve found out that I have ruined my credit rating, so how can I compete with others for a job in the profession I’ve been working so hard to become qualified for?”
It became clear to McAdory that most of the students didn’t have even a rudimentary understanding of money management or personal finances.
“By the end of the evening they had asked me to do something for other young people to help them avoid the same mistakes they have made,” McAdory said. “I have three kids at home myself, so this was eye opening. It was heart breaking. Some of these kids were being forced to drop out of college to work in order to pay off their credit card debt.”
McAdory said many of the young people didn’t understand that you are supposed to pay a minimum amount monthly on the credit card account, and were completely unaware that the consequences of piling up too much debt could be bankruptcy and future inability to get financing to buy a car or a home.
“We see clients who are having to drop out of college to repay their debt,” she said. “We have some student clients who are working two and three part-time jobs to pay off their credit card debt.”
McAdory took her concerns to the Mississippi Legislature where she lobbied for legislation to teach personal finance to high school students. Rep. Tom King of Petal introduced House Bill 820 in 1999. The bill, which required that Mississippi high schools offer elective courses in personal finance, was passed into law. While McAdory would have preferred the personal finance course be a required course, the legislation was a good first step.
“We all make financial decisions on a daily basis,” McAdory said. “Our youth must have the financial literacy necessary to make informed financial decisions.”
McAdory is also state leader for a group called the Jump Start Coalition (www.jumpstartcoalition.org), which is working to promote financial literacy in young people. The Mississippi Jumpstart Coalition was founded in May. The organization is a coalition that consists of government agencies, universities, non-profit and for-profit educators of financial literacy and lending institutions. The mission of the organization is promoting personal finance awareness.
Junior Achievement of Mississippi Inc. (JA) is another organization active in educating high school students on real-world economics. JA develops partnerships between business people and educators to benefit young people. Over 30,000 students in 30 Mississippi counties are now participating in JA programs. For more information, call (800) 844-1208.
A surprisingly large number of young people have credit cards including about 50% of high school juniors and 65% of high school seniors. McAdory said in most cases they aren’t using the credit cards responsibly because they haven’t been taught about the pitfalls.
“We teach them colors, numbers and letters,” she said. “But when it is time to graduate from high school and become adults, they are lacking the life skills it is going to take to enter the adult financial world as responsible consumers.”
And the problem appears to be getting worse. The Jump Start Coalition surveyed high school students two years ago and 56% answered personal finance questions correctly. A year later that figure was down to 51%.
Unfortunately, it isn’t always a matter of education. It takes discipline to not charge more than you can afford, and that can be difficult no matter what age you are.
“Our own daughter had to drop out of USM in her junior year because she ran up credit debt,” McAdory said. “Being a credit counselor for many years I told her repeatedly not to do that. They don’t listen. And many parents don’t know this information, as well. They fail to budget. They fail to save. When it comes to personal finances, many adults need this education as well.”
Efforts are being made to give young people tools to make better financial decisions. The state has received 93,000 free copies of “How Chuck Taylor Got What He Wanted and You Can Too,” written by CCS of Baton Rouge and donated by the Republic Mortgage Insurance Company of Winston-Salem, N.C. The book written in “teen language” is being used by students throughout the state. Another free resource is the high school financial planning program of the National Endowment for Financial Education.
More than 30,000 students in Mississippi have used the materials, which include a free workbook for students.
“It is safe to say that kids need at least an introduction to finance and good practices,” says Wendy Tucker, director for curriculum, Mississippi Department of Education. “Obviously, with the inundation kids will face with credit card applications, it is easy to get into debt. We need to start early, warn them about the pitfalls of credit, and teach them how to manage money, especially money they don’t have.
“When I first started teaching courses I thought students had a better understanding of personal finance, but they don’t. Even 11th and 12th graders don’t have the understanding they need to leave their parent’s house the next year. Often they can run up so much debt the only option is bankruptcy.”
With only so many hours in the classroom, it is a challenge for teachers to incorporate teaching personal finance responsibility to students. So what many teachers have done is incorporate these principals into other curriculum. For example, social studies, math, tech prep and vocation courses have all been modified to implement personal finance lessons into the course.
Tucker said teachers in all disciplines have personal experiences with finance and can bring those stories into the classroom to share. The kids won’t always listen, and may not be disciplined enough to practice what they have learned. But Tucker said at least if they get into debt five years later, it will be caused by lack of control-not ignorance.
Besides being informed about interest rates and the dangers of getting in over their heads, Tucker said learning how to balance a checkbook is an important skill. And she believes students need at least an introductory knowledge of investments.
“We all know if you begin investing early, the more it compounds and the more secure future you have,” Tucker said. “It doesn
t take a rocket scientist to figure that out. But in this day and time people really need to understand investments so they will have sound financial future.”
Teaching kids to be good consumers is also important. They should k