Having clean credit? Priceless
Photo courtesy of Catherine Benson
The Top 10 Financial Tips for High School and College Students
Credit Abuse Resistance Education (CARE), a money-management program co-founded by the U.S. Bankruptcy Court in Western New York, provides 10 tips on how to avoid debt, managing your finances and establishing a good credit score.
Create a budget: A realistic budget will identify exactly what you are spending your money on — focusing on your “needs” versus your “wants.” It will also show you if you have any extra money to spend on your “wants” or the repayment of any debt you have.
Open a savings account: You will need savings for emergencies and for future expenses. You will go broke relying on high interest credit card loans to pay these.
Look for ways to save money: Buying at shopping clubs and with coupons, looking for the cheapest gas price, going to discount movie theaters and utilizing student discounts are great ways to save money.
Use cash, debit card, or checking account instead of credit card: People who use cash for their purchases spend less. So if it’s under $20, pay with cash.
Avoid credit card debt: The best way to manage debt is to avoid it. Credit cards have high interest fees and often lead to late payments and over-limit fees. This means you will pay significantly more for everything you purchase.
Pay your bills on time: Paying your bills late, including credit card, rent, telephone, utility and cell-phone bills, will hurt your credit rating.
Pay debts off as quickly as possible: Do some research to look for the best credit card for rates and fees, and don’t charge anything on it that you can’t pay off at the end of the month. If you can’t pay off your credit card bill in full, pay at least 10 percent of the balance. Never make just the minimum payment, and stop charging until you have paid off your balance.
Minimize your student loan debt: Before choosing a college, ask yourself if the job you are likely to get after college justifies the student loan debt you will incur at that institution.
Other things to avoid: Impulse shopping on the internet, expensive behaviors like gambling and drugs, opening multiple store charge accounts, and having more than three-year car loans, and rent-to-own transactions. Also, don’t open credit card accounts to get “free stuff.” Those accounts will hurt your credit rating, even if you don’t use them.
Remember the consequences of consumer debt: Credit card and other consumer debt could hurt your future chances for a job, student loan, admission to graduate school, apartment or car loan. Today, everyone is pulling credit checks and using them to make decisions about your future.
by JACQUELINE McCLURE
Before Amanda Hargesheimer got her first car, her parents gave her a different kind of responsibility: a debit card. At 16, her parents co-signed the card so she could start saving money for car insurance. Six months later, her parents bought her a 2005, kiwi-green Ford Focus. While Hargesheimer has never gone over her $500 limit, she has also never had a conversation with her parents about how to use the debit card.
“I always just check the balance when I get money out of the ATM, so I don’t go over,” she said.
In the United States, too many young adults are not learning the basics of personal finance either at school or at home, financial experts say. According to a recent Credit Abuse Resistance Education study, more than 68 percent of high school seniors never had a meaningful conversation about personal finances with their parents.
In the fall, Hargesheimer, now 18, will go to Monmouth University in West Long Branch, N.J., where she will learn that her credit score could be more important than her college transcript. Poor credit can ruin young adults’ chances for student loans, apartments, graduate-school admission and car loans.
“I think it’s clear in this day and age, when your credit-card score defines you as a person, this is not something you can deal with later,” said John C. Ninfo II, a U.S. Bankruptcy Court judge and CARE founder. “This is not like a history course where you can pull an all-nighter to learn about your finance.”
A recent issue of Consumer Reports found that the average college student graduates with more than $3,000 in credit-card debt and $20,000 in student-loan debt. According a CARE study, more than 10 percent of college students will drop out of school because of credit-card debt.
The material world
Did Madonna have it right back in the 1980s when she sang that “we are living in a material world?”
In 2005, American teenage consumers spent $159 million on everything from clothes to iPods, according to Teenage Research Unlimited, a Chicago-based teen-marketing company. Experts say teens are spending more than ever because they have more to spend.
Barry Bekkedam, founder and CEO of Ballamor Capital Management, said we’re living in a “now” society. His investment advisory firm is based in Radnor, Pa., and provides consulting services to families and individuals with $5 million in assets.
“There is no patience for it anymore,” Bekkedam said about the average American teen’s compulsive spending habits. “My daughter doesn’t understand why Christmas doesn’t come everyday. We’re living in a material world. Americans want it, and they want it now.”
With a client list that ranges from NBA and NFL players to Grammy Award-winning artists, Bekkedam is hired in part to ensure his clients fit the “MTV Cribs” image. But the celebrities’ expensive lifestyles often are a ruse. Bekkedam said many professional athletes spend their first paychecks before they even get them. Still, he said the spendthrift image is affecting teenagers across the country.
“They want to live like little Parises,” Bekkedam said, referring to hotel heiress Paris Hilton and the celebrity-induced culture American teenagers feed on. “Kids are absolutely affected by what they are watching on TV and want to buy what celebrities own.”
According to the U.S. Department of Labor, 43 percent of American consumers spend more than they make in one year.
Economics professor Lewis Mandell of the University at Buffalo said teenagers turn to plastic before cash.
“They have a strong consumption mentality, and many have a herd instinct,” Mandell said. “They spend to be part of their group.”
A license to charge
Many parents believe 16 is an appropriate age to have a debit or credit card. Teenagers with driver’s licenses have some responsibilities, including paying for gasoline, car insurance and tune-ups. However, Laura Levine, executive director at the JumpStart Coalition for Personal Financial Literacy, said age doesn’t equal accountability.
“I know a lot of 15-year-olds that are responsible enough to handle that credit card. I also know 20-year-olds that aren’t,” Levine said. “We’ve assigned an age to credit cards because of the driver’s license instead of responsibility.”
Unfortunately, parents aren’t doing enough to teach their children how to use credit or debit cards or to manage money, Levine said. According to a 2006 study from the Charles Schwab Foundation, a private nonprofit organization created by the financial services company, the average teen owes about $230.
So what should we do about people who can’t pay these bills off?
“Maybe they should take away people’s driver’s licenses if they aren’t responsible enough to pay off their bills,” Ninfo said.
The facts about finance
The Bush administration and some Congress members are pushing to have more financial literacy courses offered earlier in school. Only seven states require schools to teach personal finance: Alabama, Georgia, Idaho, Illinois, Kentucky, New York and Utah. However, some states require testing on personal finance. Those include Connecticut, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Oregon and Virginia.
If teenagers don’t learn about personal finances, the credit card and service industries will take their money, and they’ll do it in as many creative ways as they can think of, Ninfo said. In 2005, the credit-card industry registered profits of more than $18 billion, and 35 percent of revenue was generated from fees.
“There is no sense of urgency,” Ninfo said. “There is no call to arms. It’s just a fact like how many people died in Iraq today.”
Hungry young consumers getting their first bite of financial independence is a dangerous thing, Ninfo said. Teenagers are simply trying to keep up with the Joneses and at any cost, he said.
“People used to have a philosophy of hope for the best and plan for the worst,” he said. “Today, it’s hope for the best and plan for the best.”
