Disturbing financial statistics

[arminnie]

I thought I'd share some data that all came from national financial magazines the past couple of days. Personally, I find these stats alarming.

1. Over the past 10 years, credit card debt among 18- to 24-year-olds has risen by 104%.

...... Curious, as always, to hear your thoughts.

I have mixed feelings about that. There were no credit cards available for students when I was an undergraduate student.

I went to a very expensive private woman's college on a scholarship. I lived and ate in the dorm as did everyone else back then. I worked 20 hours a week, occasionally babysat while taking 18-21 hours a semester so I could graduate early.

I had NO money - literally there were times when I did not have a dime to my name. I had three outfits. My family was below the poverty line, and they could not help me at all. My total worldly possessions would have fit in a large grocery bag. I only went home once a year (Christmas because we had to leave) by bus (long trip).

It was very, very difficult, and I wonder if my college experience would have been a little more positive if I'd had access to a little more cash. But on the other hand I've always hated debt so I don't know if I would have used a credit card even if it had been available.

I graduated in three years so I would not have to borrow another $1,000 for student loans - plus I was dying to get a real job and start making more than minimum wage.

I put off going back to graduate school because I could not bear the thought of being that poor again. When I did go back to a two year full time MBA program, I did have a credit card, but I never used it until the month before I started a very well paying job - I knew I could pay it off with my first pay check.

I borrowed money for graduate school, but was able to pay it off right away when I sold my previous home that I had rented out for two years while in school (couldn't sell it earlier in a bad market).

I could have gone to the Texas MBA program for a LOT less money than Stanford - but Stanford MBAs got starting salaries that were almost double so it was worth it.

 

[Temair]

So? The fact is that Temair previously probably would have spent that 25K elsewhere. I'm sure it took some significant lifestyle changes to accomplish that turn-around. It certainly wouldn't work to that degree for someone making a lot less, but then someone earning a lot less doesn't need a 10K EF and probably wouldn't/shouldn't be spending 5K on a Disney vacation.

Temair - I think its great that you turned things around like that, and especially that you were able to do it so quickly. Sounds like that light bulb really went off brightly for you when you saw how you were handling your money before vs. how you could be handling it.

rigs32 - Don't forget that debt isn't just a problem for low wage earners. As my OP points out on this thread, one third of workers earning over 75K/year live paycheck to paycheck. Debt problems affect people in all income brackets. I think anyone who manages to get themselves out of debt deserves a pat on the back.

It took alot of changes like getting up at 2am to deliver newspapers, working a part time job that allowed me to take my daughter with me, Buying only what we had to have and not what we wanted, Owning and driving only 1 car. (We still only have 1 car)

Admitedly DH had a unusually large year end bonus that year and ended up with a nice tax return. We would have found many things to spend that money on, (Like a second car) that we really didn't need to have. Instead we know that if something were to happen we are safe for 6 months, and we also get a very nice vacation.

 

[disneysteve]

I have mixed feelings about that. There were no credit cards available for students when I was an undergraduate student.

I had NO money - literally there were times when I did not have a dime to my name.

It was very, very difficult, and I wonder if my college experience would have been a little more positive if I'd had access to a little more cash. But on the other hand I've always hated debt so I don't know if I would have used a credit card even if it had been available.

Your story is an inspiring one, but I'm not quite clear on what point you are making relative to this thread. Sure, it would have been great to have more money while you were in school. But if you were that poor, what good would a credit card have been? At the very least, you would have needed to make the minimum payments which sounds like it might have been impossible for you. That could have wrecked your credit rating and affected you for years to come.

The reality today is that a student in that same situation, not a dime to their name, can apply and be approved for a credit card with $1,000 or more limit. Seems to me that is just asking for trouble.

 

[staceyfe]

Shucks, I'm giving it to her because it'll be fun for her. I love to buy the kids (with parents permission) stuff they would not get from their parents. I suspect it will also be a learning tool..those calls can get mighty expensive...she'll be learning young to make decisions..phone calls, or that cool sweater?

DMRick...I was not making a judgement or referring to your post at all. I think it's great if a grandparent wants to spoil her grandchild (that's what they're for, right?). It's even better that the phone will be her responsibility. You're doing her a favor and teaching her life lessons, IMO. I was talking about buying a phone for a child and paying for it too--every month. It's a totally different subject if a child is paying for the calls herself.

 

[DMRick]

I was talking about buying a phone for a child and paying for it too--every month. It's a totally different subject if a child is paying for the calls herself.

Thanks..I was already feeling guilty LOL! She has a birthday, and she'll come do some housecleaning to earn more cards. But I suspect it won't last long LOL.

 

[arminnie]

Your story is an inspiring one, but I'm not quite clear on what point you are making relative to this thread.

Curious, as always, to hear your thoughts.

I was just responding to what my thoughts were since you asked that in the OP.

Any my thoughts are still mixed about whether having a credit card in college would have been good - make life much easier - or bad - more school debt for me.

If I'd had a line of credit in college I could have made minimum payments with the cash that I earned and charged the stuff that I paid for with the cash. And when I did get my first job my income more than quadrupled. And a thousand dollar charge today would have been about $200 back then. I could have paid that off with my first paycheck.

I worked for the credit bureau so I knew all about credit reports and what could ruin your credit. My job was to read credit reports - it was all manual in the olden days.

I doubt seriously that I would have run up credit to buy clothes, but it would have been nice to feel that I had a "safety net."

I guess my point is that I'm not totally opposed to students having access to a credit card. Anyone that is smart enough to go to college should be smart enough not to spend money they have no way of ever paying off.

I still don't understand buying things on credit that you don't have the money to pay for in the foreseeable future. Except for housing. Even when I was 23 I only financed my car for 8 months.

Not every student can be assured that they will get a great paying job at graduation - but some do know they are going to get a well paying job when they finish. So I guess what I am saying is that a little debt to tide you over until you get the big bucks might be okay on a one time basis from some students' perspective.

 

[salmoneous]

You sound like me! I've kept my old, klunky analog phone with a $15 a month charge for service. No contract - if I use it, I pay for it. I rarely use it. It's mostly just for emergencies on the road. It has two options - on and off. I have a choice of one "ringtone". My son and his wife rib me about it constantly. But I love the low cost! I'll hang on to it as long as I can - or until the cell gods finally nuke analog service. DisFlan

Don't want to cause too much trouble here, but if you really don't use your phone much, you could switch to a pay-as-you-go-service, get a phone your son won't make fun of, and cut your costs significantly.

For example, the cheapest Virgin Moble phone runs about $30, and comes with $10 worth of air time (40+ minutes). After 90 days, you have to keep putting at least $20 worth of air time on the phone every 90 days. As long as you only use the phone about 5-7 minutes each week, the $20 lasts the full 90 days and that's your only cost.

 

[kfeuer]

Don't want to cause too much trouble here, but if you really don't use your phone much, you could switch to a pay-as-you-go-service, get a phone your son won't make fun of, and cut your costs significantly.

For example, the cheapest Virgin Moble phone runs about $30, and comes with $10 worth of air time (40+ minutes). After 90 days, you have to keep putting at least $20 worth of air time on the phone every 90 days. As long as you only use the phone about 5-7 minutes each week, the $20 lasts the full 90 days and that's your only cost.

I was about to post the same thing. Also, you can sign up to have your phone automatically topped up every 90 days, then the mininum you have to buy drops down to $15. This works out to only $5 month (if you don't buy extra time, which DH and I have never had to do). Unused minutes never go away, either. The only downside is that they don't have great service in rural areas. On BF Radio Shack had a phone $19.99 after rebate, and Target had the flip-top one for $39.99. Somebody else had a really basic model for $9.99. I wouldn't be at all surprised to see more deals on the phones in the weeks leading up to Christmas.

 

[dcfromva]

The reality today is that a student in that same situation, not a dime to their name, can apply and be approved for a credit card with $1,000 or more limit. Seems to me that is just asking for trouble.

Disneysteve,
When your daughter goes off to college in a few years, you don't plan on her having a line of credit (ie credit card) to cover unexpected costs/books and expenses?

-DC

 

[crisi]

I think I was getting the median income for a 4 person household from here:

http://www.census.gov/hhes/income/4person.html, but I could be being sloppy.


Median does tend to be a better descriptor, it depends on the shape of the data. Mean is great for a good normal bell curve.

For instance, you have ten people in your group of friends, two are unemployed and one is wealthy, their incomes are:

$0, $0, $26,986, $32,478, $52,784, $58,962, $62,986, $76,900, $85,300, and $2,340,000

The modal income is 0 - i.e. more people make nothing than anything else. The mean income is $273,639 - that buddy of yours that ended up an investment banker really skews things. The median income is $55,873 (the mean of the two numbers in the middle, since its an even number of data points).

 

[MrsPete]

I went to a very expensive private woman's college on a scholarship. I lived and ate in the dorm as did everyone else back then. I worked 20 hours a week, occasionally babysat while taking 18-21 hours a semester so I could graduate early.

I had NO money - literally there were times when I did not have a dime to my name. I had three outfits. My family was below the poverty line, and they could not help me at all. My total worldly possessions would have fit in a large grocery bag. I only went home once a year (Christmas because we had to leave) by bus (long trip).

It was very, very difficult, and I wonder if my college experience would have been a little more positive if I'd had access to a little more cash. But on the other hand I've always hated debt so I don't know if I would have used a credit card even if it had been available.

Change "expensive private women's college" to "large state school" and I could tell the same story about my college years. I also lived in the dorms (which I liked) and ate in the cafeteria. To save money I only had a weekday meal plan, so I'd take baggies into the cafeteria and bring back dry cereal and sandwiches to last over the weekend. They used to sell hotdogs on Sunday nights 2/$1, and there were times when I literally couldn't buy a hotdog. There were times when I literally couldn't do my laundry because I didn't have the quarters.

I had a great time in college, but I hated being broke all the time. I worked constantly, but almost every penny was saved for the next semester's books and tuition. Credit cards WERE available to students at that time, but I never even considered them an option. I was smart enough to realize that I was barely making it as it was; I knew that even minimum payments would've been very difficult to make.

 

[MrsPete]

Disneysteve,
When your daughter goes off to college in a few years, you don't plan on her having a line of credit (ie credit card) to cover unexpected costs/books and expenses?

I'm not DisneySteve, but I'll answer anyway. I don't think I would. GENERATIONS of people have made it without credit cards, and most of those people turned out to be better at managing money than the average American today.

I think it's better to allow the college student to figure out for herself how to manage. What's an emergency? I'm out of laundry detergent -- is a credit card the only answer? How about borrowing from a neighbor? I don't have money for gas -- how about budgeting in advance so you don't run out? I don't have anything to wear to a party -- wear something old. In a REAL emergency, she could call home; with a credit card in the pocket, there's no need to learn to be resourceful.

I don't really recall unexpected costs in college. I knew when tuition/books would be due. The health center provided medical care for free. Having a credit card upon which to fall back can be a crutch.

 

[tar heel]

My son is a college student and he doesn't have (or need) a credit card. He has a meal plan, so he's never going to starve. His tuition, fees, books, etc., have been paid for. He has a check card and has overdraft protection on his bank account. I agree totally with letting the student figure out for himself what to do if money runs low. He would call us and we would help out if it were a true emergency.

Mrs. Pete - one thing that's changed since you and I were in school is that the student infirmary sends you bills! My son has been sick once, his student account was billed for it and our insurance refused to pay the charge. The infirmary does not accept insurance -- they bill the student account. They also would not give me details of his visit because he's an "adult," so he had to go to the infirmary and get papers for me to send to the insurance company.

 

[disneysteve]

Disneysteve,
When your daughter goes off to college in a few years, you don't plan on her having a line of credit (ie credit card) to cover unexpected costs/books and expenses?:\

Quite the contrary. I definitely expect her to have a credit card, possibly an extra card on our existing account. And I fully expect that by the time she heads off to college, she'll know how to use it properly. Heck, I think she probably knows that now as I keep her involved in our family finances and teaching her how these things work.

I suppose our situation is a little different than some. We are saving/investing for her educational expenses. And I plan to continue to support her during her college years. I had many friends in college whose parents basically cut them off when they started school. They were pretty much on their own. I just don't personally think that is the way to go. I want DD to be focused on school, not on having to work to feed herself. That's my job.

Of course, if at any point, she shows that she isn't using the CC responsibly, I won't hesitate to take it back. But otherwise I want her to have the convenience and safety of a CC at her disposal.

 

[DisFlan]

Don't want to cause too much trouble here, but if you really don't use your phone much, you could switch to a pay-as-you-go-service, get a phone your son won't make fun of, and cut your costs significantly.

For example, the cheapest Virgin Moble phone runs about $30, and comes with $10 worth of air time (40+ minutes). After 90 days, you have to keep putting at least $20 worth of air time on the phone every 90 days. As long as you only use the phone about 5-7 minutes each week, the $20 lasts the full 90 days and that's your only cost.

Heck, 5-7 minutes a week is heavy use for me. The only really reliable reception (or store)
in our area is AllTel, which is what I have. I THINK they now offer the kind of phone you're talking about. I'll check it out.

Gee, would that mean I could get a nifty Backstreet Boys ringtone? Or even better - Clay Aikens! Whooo-weee! (My kids have to have some reason to make fun of me.)

DisFlan

 

[disneysteve]

I was just responding to what my thoughts were since you asked that in the OP.

Any my thoughts are still mixed about whether having a credit card in college would have been good - make life much easier - or bad - more school debt for me.

So I guess what I am saying is that a little debt to tide you over until you get the big bucks might be okay on a one time basis from some students' perspective.

Understood. Thanks for your input.

 

[MrsPete]

Mrs. Pete - one thing that's changed since you and I were in school is that the student infirmary sends you bills! My son has been sick once, his student account was billed for it and our insurance refused to pay the charge. The infirmary does not accept insurance -- they bill the student account. They also would not give me details of his visit because he's an "adult," so he had to go to the infirmary and get papers for me to send to the insurance company.

Really? I had no idea.

When I was in school, we paid a mandatory "health center fee" along with our tuition-- I think it was about $20 or so -- per semester. We could go to the free cold care clinic anytime, read through a list of symptoms, and choose over-the-counter meds "for free" (wasn't actually free, more like included with your tuition). If we saw the doctor, there was a charge like $2-5. Their main-stay, however, was birth control.

 

[dcfromva]

I don't really recall unexpected costs in college. I knew when tuition/books would be due. The health center provided medical care for free. Having a credit card upon which to fall back can be a crutch.

MrsPete,

An unexpected cost would be one that we didn't know about in advance, otherwise we would budget for it.

I do not know for sure about the health center costs at DS's planned college, if it is really serious, (from what I can tell, anyway) they don't treat at the health center--and some places may not bill health ins.
Also, I don't know of any school that covers prescription costs. Often times when we go to the local pharmacy, we have to pay an eye popping co-pay!

Obviously, I do not advocate charging anymore than what one can pay off (monthly), but I really don't see the difference between having a line a credit that you pay off on a monthly basis vrs having a checking account that you draw from directly. If they don't learn how to use credit wisely in college (ie: pay off the balance on a monthly basis), then when will they?

I think a line of credit provides a lot of protections you can't get from a debit card.


-DC

 

[chrissyk]

I think it's only going to get worse. Parents aren't going to teach their children better financial management because it's the 18 - 24 yr olds who are starting to become the next generation of parents. I think we have to start educating children about this. I really think financial management classes should be integrated into schools.

I really agree with this! Kids aren't being taught financial management at home because they parents are not educated on these matters. There should be some comprehensive program to teach this in high school IMHO. That might go a long way towards helping the next generation get and stay on track financially.

 

[dcfromva]

Quite the contrary. I definitely expect her to have a credit card, possibly an extra card on our existing account. And I fully expect that by the time she heads off to college, she'll know how to use it properly. Heck, I think she probably knows that now as I keep her involved in our family finances and teaching her how these things work.

I suppose our situation is a little different than some. We are saving/investing for her educational expenses. And I plan to continue to support her during her college years. I had many friends in college whose parents basically cut them off when they started school. They were pretty much on their own. I just don't personally think that is the way to go. I want DD to be focused on school, not on having to work to feed herself. That's my job.

Of course, if at any point, she shows that she isn't using the CC responsibly, I won't hesitate to take it back. But otherwise I want her to have the convenience and safety of a CC at her disposal.

disneysteve,
That is exactly our situation. I would be upset if there was legislation which took away that financial tool. I am sure there are other ways to accomplish the same thing, but I want to have the option to decide.

-DC :ears: