Students Assume Heavy Load Of Credit Young People Learn About Economics Of Credit Cards
Second of two parts
Lorna Doon Sebers’ flair for the dramatic is eclipsed only by her flair for the extravagant.
The Gonzaga University senior racked up $6,000 in credit card debt to go along with a $12,000 truck.
Her spending habits have forced her to push back her graduation date.
“I don’t want to be a starving artist when I graduate,” she said. “But at this point it may be too late. I’m going to have to work full time before I finish.”
Sebers, 23, plans to skip the fall semester in order to pay bills. Graduation has now been pushed back to next May.
Sebers is part of a growing number of young Americans who spend too much and save too little.
Nationwide, the average college student has a balance on two credit cards, says Spokane’s Consumer Credit Counseling Service. Sebers owes on five credit cards: MasterCard, Discover, Sears and two Visas.
She amassed her debt since getting her first Visa card five years ago. She said she doesn’t know the interest rate charged on any of her cards.
“At this point, I just look at the bottom line: What do I owe?”
Sebers was a freshman when her parents suggested she apply for a credit card for emergencies. Instead, she began buying merchandise she couldn’t afford.
She bought a full-size wrought-iron bed frame with canopy. She used another card for “very expensive” start-up costs for two business ventures that failed.
Sebers wouldn’t say how much money she spent on the two businesses because she was too embarrassed.
Last year, she bought a $12,000 1993 GMC Sonoma pickup, complete with tinted windows, sunroof and a tape player.
The irony is that unlike many of her classmates who are in debt because they attend a private school, Sebers said almost all her education is covered by scholarships and grants.
It’s her spending that’s put her in a bind.
During the last school year she worked 30 hours a week on three different jobs and still went to school full time.
A credit card company spokeswoman said excessive debt is unusual among college students.
“Most college students are responsible card holders,” said Cathy Edwards of Discover Card Services. “They are some of our most valued customers.”
But a Spokane financial adviser said a major reason credit card companies like to sign up college students is the money they make on interest charges.
“Most students don’t pay their balances in full, and those who do usually get help from their parents,” said Shayla Bolt of Consumer Credit Counseling.
Some credit card companies pay colleges $50,000 to $100,000 a year to market to students on campus, Bolt said.
Officials at local colleges say they don’t accept money from credit card companies.
“We don’t charge because we feel it’s a service to the students to help them get prepared for college and life after,” said Dale Goodwin, media relations director at Gonzaga University.
At the beginning of the academic year at Eastern Washington University, Gonzaga University and Washington State University, representatives from financial institutions set up application booths on campus for students who want credit cards.
At WSU, Discover and Citibank Visa ask on-campus student groups to recruit card members.
Those organizations receive discounts from the companies for their own purchases when they sign up students, said Jody Lind, a graduate student in WSU’s student affairs office.
WSU officials outlawed the practice on school grounds in recent years. Student groups have to recruit potential applicants off campus.
“I know so many people who get their student loan money at the beginning of each semester and take part of that money to try to pay off their credit cards,” Lind said.
Bolt said the problem with young consumers is that they develop their parents’ spending habits.
The average adult has nine credit cards and carries at least $2,000 balances on four of them, Bolt said.
“Young people see their parents go to dinner, go shopping, and they put everything on a credit card.
“It all looks so easy, but the problem is that a lot of young people don’t view credit as a line of debt, they view it as a line of cash.”
Bolt and Spokane Teachers Credit Union loan officer Jenny Giampietri are volunteers for the credit counseling service that targets middle school students and teaches them how to spend money wisely.
Before school ended in June, Bolt and Giampietri asked students at Sacajawea Middle School where they would like to go for vacation during their summer break.
After hearing suggestions for Cancun, Mazatlan and Hawaii, Giampietri and Bolt explained what would happen if they were to put a $2,000 trip on a credit card with an annual percentage rate of 18 percent.
“It would take 11 years to pay off the trip if you just paid the minimum balance of $35,” Giampietri said. “You would also pay $2,574.46 in interest.”
Bolt and Giampietri hope the program works.
“They’re almost high school age,” Bolt said of the middle-schoolers. “High school students who work spend 90 percent of what they make and save just 10 (percent).”
By learning to be responsible now, “teenagers will be able to manage their whole lives better,” said Elizabeth Schiever, director of the High School Financial Planning Program, a branch of the National Endowment for Financial Education in Denver.
“And the sooner they develop the habit of saving, the easier it is to save,” Schiever said.
Lorna Sebers now wishes she would have listened to that advice.
Sebers said her financial burdens put her under tremendous stress. She spent time in the hospital last year due to exhaustion and migraine headaches.
“When I checked out of the hospital, I looked over and saw my mother was paying for the bill with her credit card,” she said.
“I thought, ‘Boy, I’m probably in here for that very reason.”’