The card conquers all

Editorial Notebook

July 22, 2006|By BRENDAN LOWE

At a convenience store in Washington recently, a twentysomething professional bought a pack of gum. The total was $1.25 - he paid with his credit card.

The perilous piece of plastic has become an alluring payment method for all Americans, but especially for young people, on whom the card's magnetic strip has a particularly strong pull. But it's not entirely their fault.

As the economy expanded during the 1990s, the options for mortgages, pensions, insurance and credit cards increased. Teenagers growing up during that increasingly complex time were left unprepared and financially vulnerable by high schools, universities and the government.

"Choices have outpaced our knowledge and in that gap is financial literacy," said Dan Iannicola Jr., the deputy assistant secretary for finance education at the Treasury Department.

Young people today don't know how to manage their money - high school students routinely fail a 30-question basic finance quiz that has become an industry standard.

Checkbook? Don't have one. Bank statements - who reads them?

The can't-miss dot-com boom didn't help, either. It offered a false sense of financial invulnerability. No wonder Americans ages 18 to 24 are declaring bankruptcy at the fastest-growing rate. Youngsters wouldn't be so adrift had they learned basic money management in high school. But students were too busy learning how to gauge the slope of a parabola.

They arrive at college without the skills - or interest - in managing their money, and they are easy prey for a plethora of credit card companies. Signing up for a credit card has become as synonymous with starting college as getting a meningitis vaccination. According to the student loan institution Nellie Mae, 56 percent of undergraduates got their first credit card at 18. And by the time the average college student graduates, he or she has four credit cards and an outstanding balance of $2,169.

Even if students don't start college with a MasterCard, they become part of the card-carrying culture whether they want to or not. At many universities, campus freshmen are required to have a prepaid meal plan. When they go to the dining hall, they simply swipe their card. Same goes at the gym or the dorm. The card conquers all.

When the time comes to go off the meal plan, it's only logical to get another card that has the same access - lots - and responsibility level - none.

Don't believe universities are innocent bystanders. As The Orlando Sentinel reported this year, many schools earn more than $1 million annually from deals that give credit companies campus access.

And students are paying the price: Georgetown University sociologist Robert Manning, who has studied credit card debt among college students, has found that some young people graduate with more debt from loans and credit cards than what they will earn in a year in their first jobs.

In 2003, Congress took a break from cashing its campaign donations from the finance and insurance industry - second only to labor unions - and decided to step in. It revised the Fair Credit Reporting Act, which granted citizens free annual credit reports. But more important, it gave the federal government's backing to the financial literacy movement, encouraging states to pursue such programs.

Today, more than a dozen states require some sort of financial literacy education to graduate from high school. Though Maryland is not among them, Baltimore, Harford, St. Mary's and Talbot counties have enacted similar requirements.

This fall, financial literacy wonks will gather at a Treasury Department event to discuss the success of money management education. It comes down to this: Can a 22-year-old be persuaded to put aside $40 a week for retirement instead of casually tossing it away with a credit card? It could mount to $1 million by age 67 (at an admittedly robust 8.5 percent annual rate of return). That's enough to make you want to put the plastic away - if, that is, you can wait that long.

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