Students’ Financial Ignorance a Major Parental Concern
Imagine you’re 30 years old and still paying for that pizza delivered to the dorm freshman year: That’s the dyspeptic picture that financial educators paint of student credit-card use and abuse.
That image also underscores why parents’ top concern is getting their children to understand money management, according to Visa USA’s new back-to-school survey. Seventy-four percent of parents of high-school students report that it’s critical to teach them to handle money, compared to 58 percent who worry their kids will hang out with the wrong crowd and 56 percent who fret about drug and alcohol.
There’s good reason to fear students’ lack of personal finance knowledge:
_ Seventy-six percent of college students put it on plastic, with school supplies, textbooks and food topping the list, student lender Nellie Mae reports. It also put the average student’s credit-card balance at $2,169 _ an improvement over the $2,327 average balance the year before _ but still a good chunk of change for people who mostly pay the minimum balance.
_ One in three high-school seniors uses plastic, and half of them already have credit cards in their own name, according to the Jump$tart Coalition, a public-private financial literacy partnership.
Lewis Mandell, a State University of New York-Buffalo finance professor who did the Jump$tart poll, found that, even though “one might suspect that students who use credit cards would score higher in the credit area of the survey than other students, the results show just the opposite.” Chargers scored 45.4 percent compared with 49.8 percent for students who pay cash, although both groups flunked the credit-card test.
Such poor showings prompted TV finance talking head Suze Orman to suggest that parents train their children to use credit cards by 15 or 16 by putting them on the family account or getting a card in their name with a low credit limit. She’s caught flak for the idea from some parents and planners, but counters that parents should act before their children are deluged with less-favorable credit-card offers on campus.
At Oppenheimer Funds, where polls show that more than half of college students commonly charge to the card’s limit, executive Laura Coulston said, “College-age students don’t always think about the long-term implications.”
Coulston said that, instead of spending $7 a week on delivery pizza or two lattes a week, a student should save that $245 over each of the four undergraduate years. She added that a student, in so doing, will have more than $20,000 by age 65 and may also “save” the “freshman 15″ _ referring to the supposed weight that a first-year college student puts on.
“Kids’ Allowances” author David McCurrach believes that teaching children responsible use of credit starts with parents teaching them to manage a cash allowance: He and his wife started by giving $2 a week to eldest son Branden at age 3 so he could choose to spend it on small stuff or save it for the $4 action figure in two weeks.
McCurrach, a Franklin, Tenn., father of five and grandfather of five, raised all his children by the motto: “There’s only one way to teach children to manage money, and that’s by letting them manage money.”
Financial ignorance comes at a price that’s about to get steeper. On Oct. 17, the new Bankruptcy Abuse and Consumer Protection Act kicks in. It makes it tough for Americans to shed their debts by filing for bankruptcy.
Already young adults 25 to 34 have the second-highest rate of bankruptcy, just after those 35 to 44, according to a Federal Reserve survey of consumer finance data analyzed by Demos, a nonprofit public-policy group. Demos also reports that credit-card debt held by consumers 18 to 34 soared 55 percent since 1992, to $4,088 on average.
“This is an age when you set credit and finance benchmarks for the rest of your life,” said Tamara Draut, lead author of the Demos report. “Young adults starting off in the red will find that it impacts their financial security for years to come.”
To Jump$tart executive director Laura Levine, the dismal numbers suggest that “students are simply not getting the personal-finance information they need for coping with today’s economic world.”
Her group, the Fed and other public and private sponsors are pushing to expand financial literacy at home, online, through the schools and through after-school activities like the Boys’ and Girls’ Clubs.
Indeed, the No Child Left Behind Act of 2002 authorizes $385 million for schools to develop practical money courses for kindergarten through high school, even though Congress and the White House have shortchanged funds to carry out the law.
However, Visa USA reports that most parents say their children don’t get financial education at school or at home. To help, its back-to-school budget calculator and other tips are online at www.practicalmoneyskills.com.
An exception to the rule is Damon Williams, age 12. As the seventh-grader at Chicago’s Morgan Park Academy explained it in his winning essay at the MoneySmart Kids conference this month at the Chicago Federal Reserve Bank, start by looking at the products your family buys and the clothing brands your friends wear. Then, “instead of spending $175 on gym shoes, invest that $175 in the company that makes those shoes.”
Paul Richard of the Institute of Consumer Financial Education says parents should take advantage of back-to-school shopping to teach students about wise credit use _ when “back-to-school time is one of the major spending promotion times by retailers and credit-card issuers.” His advice: Make a budget, make a list, stick to it and pay cash.
On the Net:
www.treas.gov/financialeducation
www.jumpstart.org
www.icfe.org
www.allowancemagic.com
(Contact Mary Deibel at DeibelM(at)shns.com)
© 2005 Scripps Howard News Service.
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