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Some of the posts about the new folks who are here, a question my bro asked me last night, and the post asking us how we got into credit card debt got me thinking about a topic that bothers me from time to time. (when I refer to debt throughout this post, I'm strictly referring to credit card debt, and not student loans, car loans, mortgages, etc.)

I know it has probably been discussed here before, but I want to revisit it. And let me put the caveat at the beginning: I know that credit card debt is no one else's responsibility but my own, and that I cannot blame anyone else but myself. I just want to examine some psychological/emotional/"it-was-my-childhood" reasons that some people get into credit card debt in the first place.

The issue is why so many young adults, between the ages of 18 - 28 seem to accumulate so much credit card debt so quickly, so easily.

First, my credit card debt story:
I was very careful throughout college. My parents had warned me of the dangers of credit cards in a vague way, and I just didn't see the need for one. I had very few expenses that weren't "handled" by my parents. They made me feel as though I was taking care of myself, because I earned enough money each summer to use as my "allowance" during my college years. However, I had such a soft, soft nest during that time (and I didn't realize it) in that my tuition, housing, and food was completely paid up front, by scholarship and by my parents. They still took care of doctor bills, I was under their insurance, and I didn't have a car. I enjoyed what I thought was a rather "ascetic" existence during college: I lived in the dorm throughout, I rode a bicycle that I bought with cash I earned one summer, I didn't go out very much until my senior year, and then, it was cheap, because of ladies' nights, nice bouncers, and guys who wanted to buy me drinks. Hehe. For me, "expenses" included books I wanted to buy, pizza and other non-dorm food, a movie from time to time, clothes (but my friends and I were into thrift store clothes, and I hung out with international students and hippie kids - we wore the same clothes all the time). Little did I know what "ascetic" could really feel like....

I got my first credit card in 1997, a Capital One Mastercard, that my mom actually got for me. She was very clear about the fact that I must pay off any balance right away - in other words, a revolving balance was not okay. I guess I was a good kid, because even though I didn't really understand the repercussions of interest, I did what my mom told me to do. I paid it off every month, and never ran up more than $75 - 100 a month. My motivation was a vague fear - I don't know what I was afraid of. It certainly wasn't interest.

Then, I graduated. Something must have just snapped inside me at that point, because my credit problems all began then. I have tried many times to figure out what happened, and how it happened, and the following are some things I have identified:

1. I had a pathetic job. $12,000 a year as a teaching assistant at a private school, plus $4,000 a year I scraped together with odd jobs around the school, plus about $1,500 from babysitting. I only worked there for three months, when I got offered what I consider my first "real" job.

2. During the "pathetic" job time, I rented a big ole house with a friend of mine in a crack neighborhood near my old college. It was a humongous two story monstrosity that probably should have been condemned, but we were two unwitting, naive idiotic college grads who thought it would be cool to have all that space for only $600 a month. My roommate kept saying, "we have two rooms each!!" We had an attic, a back-yard, a "garage" (I think there was a body in there), a front porch, etc.

3. I didn't know what it meant to make only $1,000 a month after taxes. I didn't know how to make a budget or stick to a budget. For some reason at this point in my life, I did not listen to my parents. I was preparing to marry someone I should not have married, and they didn't know about. They didn't like where I was living - I was so happy to be on my own that I didn't care what they thought. And finally, I thought (wrongly) that I was now an adult who could do what I perceived were "adult" things (okay, you guys, not what you're thinking!): buy furniture, wear nice clothes, go out to eat, have whatever I wanted in my fridge, go on trips to visit friends, buy nice wedding gifts, buy music, books. In short, what I perceived I could do with a $16K salary was more realistically the kinds of things one might do on a $25-30K salary. I also had inherited an old car at that point, and although I didn't have car payments, I now had insurance to pay, fuel to buy, oil changes to make, general maintenance, etc.

4. After I got my car, I found that “glorious” invention: the “15% off anything you purchase if you open a credit card today” pitch at a couple of my favorite stores. You know that feeling (well, back in your pre-Fool days, perhaps): “I can get the same stuff I was planning to pay cash for, not pay anything for it today, and get it for 15% less?” The 18.9% finance charge meant nothing to me – and back then, I wasn't even necessarily thinking of paying the balance off completely. Rather, it sent me back to the racks to get even MORE stuff! Feeling like a queen, walking out of Banana Republic with two bags full of nice new clothes.

5. Note to parents of college students: without a car, I had no way to get to those stores, at least not very often.

6. Then I got married, which is a whole other thing in itself, but I know it contributed to my debt.

By that point though, it makes no difference to talk about how I continued to use credit cards. The fact is that I thought I could, and I thought everyone did, and I thought I could handle it, pay it off, get out of it, whenever I chose to.

That dangerous belief is the one thing that I think kept me in the cycle of (ab)using the cards. “I can get out of this when I choose to.” I was talking in an earlier post about how people hurt themselves by believing something about themselves that just is not true. The discussion was about responsibility. To refresh, the idea was that if a person keeps saying, “I'm a responsible person,” but keeps showing up late, paying bills a little late, forgetting to do things, etc., then that person is in for a rude awakening, and probably some depression and frustration, because the consequences of those behaviors are consequences that a person wouldn't expect, if they truly believed they were “responsible.” “How could this happen to me? I'm a responsible person!”

It's the same with this situation. I believed I was in control of my debt, and that I could get out of it whenever I chose. How sickening now to think that there came a point where I had about eight accounts open at once, all with high, if not maxed, balances – even after I had my new job and was making $20K per year, I could not possibly have paid those balances off whenever I wanted. I was only 23 - 24 years old!

I hit bottom in late 2000, early 2001, and it still seems impossible to me that I was able to run up nearly $10,000 in credit card debt over the course of two years. I honestly had/have nothing to show for it.

Several things happened then that I don't need to repeat, that led me to the Fool. It has taken me a long time to understand what my needs are, how much of my income my needs require, how much wiggle room I have (without credit cards), how much I will need in retirement, etc. etc. I still struggle with it. But I no longer use credit cards at all. I am back to the mentality I had during college, when I was afraid of them, but now I'm afraid for the right reasons. It's a shame that I had to throw away so much time and money in returning to a way of life I could have, with a little discipline, kept all along.

But the point of this whole lengthy tirade is to get back to my original question: why so many young adults, between the ages of 18 - 28 seem to accumulate so much credit card debt so quickly, so easily.

My big brother (9 years older than I), who is in a deep hole right now (I won't go into details), was talking about it last night with me. He reads www.clarkhoward.com, and gets a lot of the same advice there that we get here at the Fool. (I still think the Fool is superior, but that's just one woman's opinion). He said something that struck me: “I know Dad budgeted all the time, but he never showed it to me.”

There are always raging debates here and on the LBYM board about how to raise kids to be financially savvy.

Since my “wake-up call,” I have believed that in order for a person to internalize the meaning of living on/within a budget, that person has to really understand the value of earning, and the way to do a cost/benefit analysis, even on a really small scale.

I don't care how many times my parents, either in trying to teach me a money lesson, or just because they didn't have the money for whatever I wanted, told me: “credit cards are bad,” or “we don't have enough money for that,” or “wait until you get your allowance,” they did a million other things that reinforced an opposite belief in me. (My parents are awesome, by the way. They have done everything for me, they still help me through tough times, as evidenced by the ongoing car lease saga -- )

Things they did that I remember:
1. They used credit cards. Even though they told me cards were bad, I guess what I internalized was almost akin to sex or alcohol – the unspoken assumption “for kids” – those things are bad for kids, but not for adults. When you're an adult, you can. But just like with sex or alcohol, the reason they're for adults is because it takes discipline, responsibility and knowledge to handle that kind of privilege. Hmmm… I just realized this, but I was never taught how to be responsible with any of those things. I have had to learn the hard way with each.

2. They didn't want me to do without. My parents were both from poor families. My dad grew up on welfare, without a father. My mom did a little better, but still, her dad was a fireman and there were six kids. By the time I came around, my parents were in good financial shape, relatively. I remember going to the store clothes shopping. There was never a spoken limit at the beginning. They never mentioned the cost of things. They never said, “You can spend $50, and that's it.” There was never even a limit, such as “you can get one dress.” It was always, “let's just look around and see what we find.” There were no dashes straight to the clearance racks. My dad took pride in the fact that if I found two beautiful dresses and they looked good and fit well, he could buy them for me. It was the same for groceries, toys, anything.

3. They kept money to themselves. Money was not something they wanted us to worry about. One of my parents' biggest fears was that I would start wanting a car so much in high school that I would get a job to buy one and stop doing well in school. That was a typical desire, and I imagine still is. You turn 15, you start thinking about wanting a car when you're 16, you get a job, grades maybe suffer a little, you buy a car. They had it wrong in my case, though. I didn't care about a car, but I wanted other things (everyone wants something). I held little jobs here and there, and I did well in school. But the point is that they didn't want us to even think about money. They didn't show us their business, because they didn't want us to worry. They wanted us to enjoy the fruits of their labor – great, loving parents, but a lousy way to raise financially savvy children.

4. Money was a reward, as were “things” I got money for getting “A”s in school. Shopping was an upper. A full fridge made mom very happy. We never saw the boring, tedious, sometimes frustrating side of money: the budgeting, budgeting, budgeting, what mom and dad gave up so that we could have. I never saw my ballet lessons in terms of their “cost,” and I don't mean their financial cost, I mean what they meant someone else in my family had to live without. I loved my family fiercely, and I'm sure that if it had been explained to me that the cost of my ballet lessons was dad's vacation, or mom's new set of pots or a new dishwasher, or a computer for my brother – I would have learned better.

5. money was abstract It doesn't do any good to tell a kid who has never earned money that a bike costs $100. A bike doesn't cost $100. It costs twenty movies watched in the theater. It costs ten afternoons of mowing lawns.

But then, people say, “Make your kids have a job.” That still doesn't explain why I or my brothers or my sister have had problems with managing money. We all had jobs. I think that jobs are great for teaching responsibility to other people. They teach you about accountability, having someone depend on you. My first job taught me why the lottery is stupid: I worked in a video/tobacco/lottery kiosk in our local grocery store. Every night we tabulated the proceeds of sold lottery tickets versus the amounts paid out. We always had a huge stack of $1.00 payouts, maybe two $5.00 payouts, one $10.00 payout if someone was lucky, and that was about it.

But of all the little part-time jobs I had, toward the end of highschool, in college, and even the big summer college job I had didn't teach me how to manage money. All I knew was that it had to go in my savings account, and that it would in some mystical way “help” with college.

Like I said, college was a very soft experience. Our dorms were very nice. I didn't pay an electric bill, but I had plenty of electricity. I didn't pay a phone bill, nor an internet bill, nor a cable bill (isn't it ironic that the only time in my life I had cable was when I was in college? It was “included.”). My parents, again, took care of things.

I think 19, 20, 21 years old is too late to begin learning about personal economics: either this CD or that one, not both. Those were the toughest choices, in terms of money, that I had to make.

I do not think my college offered personal economics classes/workshops, and even if they did, I do not think any of my friends would have attended.

Similarly, my law school is trying very hard to teach us about the financial situation we'll be facing upon graduation: loans in the tens of thousands, jobs starting at $40 – 50K if we're lucky, and life's curve-balls.

The response of my peers? “I'm not going to that meeting. Here's the answer to financial responsibility: graduate and get a job! If you make good money, you don't have to worry about it.” Where does this sense of entitlement come from? Does everyone already understand what I have struggled to learn? I kind of don't think so, because I have many friends (more than I can count) who are between 20 and 30 who are still being bailed out by parents, who carry credit card balances that are out of control, who think that the only reason they can't pay their bills is that they are college/law school students, who continue to run up credit card debt and say, “it doesn't matter; after I graduate, I'll just pay them all off at once.”

What is my generation going to do when it's time to retire?

So, my questions and thoughts for discussion:

1. What can parents do to teach children about managing money? I've already mentioned some by implication: set limits, and stick to them. “One or the other, not both.” How can the lessons of money management be adapted to a child's college experience so that there is a transition from dependence to independence?

2. What can institutions of higher learning teach young adults? How can the sense of entitlement and the psychology of debt be brought to light? Why don't workshops or little “financial responsibility” meetings work? Why don't students attend, and if they do, does it really sink in (hard to hear warnings over a self-playing mantra: “just make money, you're responsible, you'll be fine.”)

3. Why do people continue to believe that they are “in control” of their debt long after it should be apparent that they are not? Also, why do people start to think, "My Visa still has $100 left on it," instead of "I am nearly maxed out on my Visa." I know a lot of people who think of the difference between their balance and their credit limit as money they can use.

4. Why are college students who have no income allowed to have credit cards at all?

I think that's all for the moment. Sorry this is so long.

Deb




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LOUD APPLAUSE!!! Deb, you tell it like is/was.

I remember the priest telling my good Catholic parents "don't worry the children with money issues". In retrospect, I think that's pretty dumb advice. I loved your part about a bicycle being ten afternoons of mowing lawns or twenty movies. It's too late for me, and probably too late for my children. I know how your dad felt about having two nice, new dresses for you to wear. Been there, done that with my kids. That feeling sort of wipes out all the memories of growing up poor. And who better to do those things for than the ones we love the most?

But..there comes a day of reckoning when one realizes that they are NOT rich and can no longer live as if they were. It's time to suck it up and pay the piper (or in this case, the credit card companies).

It sounds as if you've had some bumps along the way. But, you've learned from those bumps and I know your loving, well-meaning parents are very, very proud of you.

I get chills when I think of the easy credit given to college kids. And you are so right - financial responsibility should be a mandatory class! In fact, this board should be required reading for every freshman, and right up through graduation!

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Fine post, Deb.

1. What can parents do to teach children about managing money?

You've already touched on some good things here. I don't have children myself, so I can't discuss it from that end; but I can think of many things my parents could have done differently. I guess I'd suggest that parents a) be on the same page about finances; and b) let kids in on the planning, in age-appropriate ways.

Of course, I'm 38 and finally figuring it out; if I'd had kids at 25, I'd now be trying to undo all the horrible lessons I'd already taught them. ;-)

2. What can institutions of higher learning teach young adults?

Financial planning. Setting a budget. Filing a basic tax return. The different types of savings accounts and retirement vehicles. Basic balance-sheet analysis for potential stock investment. Compound interest, related to how much an item REALLY costs you if you buy it on a credit card and pay down the minimums.

Unfortunately, the "I can afford the payments = I can afford it" crowd probably won't get much out of this. I really think if "income must be >= outgo" hasn't been internalized at this point, even without details, that it's going to take real-life experience to change the attitude.

3. Why do people continue to believe that they are ?in control? of their debt long after it should be apparent that they are not? Also, why do people start to think, "My Visa still has $100 left on it," instead of "I am nearly maxed out on my Visa."

I actually said to someone once, "As long as I can make the minimums every month, I don't care what's on my cards." Much of that was feeling that the debt was beyond anything I could ever pay off, so who cared, as long as collectors weren't coming after me?

As far as being maxed out goes...let me tell you, when you're carrying a bunch of maxed-out cards, every little bit seems like a gift. I remember, some years ago, needing work on my car, and realizing I had enough on my CC to cover it. I was SO relieved. (That was also shortly after I'd started my first efund. Imagine my shock when I discovered that I could pay for the car repairs in CASH. That was the beginning of the paradigm change for me.)

4. Why are college students who have no income allowed to have credit cards at all?

Got me. This wasn't the case when I was in college ('82-'86). If you knew someone with a CC, it meant their family was rich, and Mom and Dad were picking up the tab.

Corporations in general, I think, are trying to hook consumers at younger and younger ages. If it wasn't a risk that was paying off for them, they wouldn't be doing it. They don't care a bit about an individual's financial savvy; they just care about whether or not they can make a few years' more interest off of them.

JMO,

-lizmonster
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As far as being maxed out goes...let me tell you, when you're carrying a bunch of maxed-out cards, every little bit seems like a gift. I remember, some years ago, needing work on my car, and realizing I had enough on my CC to cover it. I was SO relieved.

I used to do this as well - I don't want to sound like I'm asking why "other people" do something that I am too "righteous" to do or to have done.

The only reason I ask why people feel that way about space on a nearly maxed card is that it bothers me how I ever got to that point - of being thrilled if I had a credit limit of $1,000 and a balance of $950, because then I could actually DO something.

You're right about the feeling that comes when you get back to a point of using cash. Now, instead of looking for space on a credit card, I use cash that has been budgeted for my expenses. It feels SO good.

;)
Deb
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I used to do this as well - I don't want to sound like I'm asking why "other people" do something that I am too "righteous" to do or to have done.

I don't think you sound like that at all. I do think it's hard, though, once the light has dawned, to look back on your own behavior and understand it.

Money was magic in my family. If there wasn't enough, the belief was "something" would eventually show up. And that actually happened often enough for me to internalize the idea. On top of that was the "Why save $5? It'll never amount to anything at that rate!" attitude.

I still fight this belief, but now I recognize it for what it is: a learned impulse not based on fact. And I've been living off of facts long enough that I know how liberating the freedom NOT to spend really is.

-lizmonster
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You know, on the issue of your fellow students in law school, as I was reading it occurred to me that I make more than the highest-paid entry-level associates at major firms and yet it would still be a huge hassle and require careful planning to manage the level of debt with which most graduates emerge from law school.

Your friends are, as you pointed out, fooling themselves.

-- Mark
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1. What can parents do to teach children about managing money?

Very boring stuff. Talking about money. Saying "I can't afford it. " Explaining the choices we make. Help them understand the choices they make. It's the same old story. Do the right stuff. Set a good example. No drama, no excitement.

2. What can institutions of higher learning teach young adults?

Why should they do anything. I would assume students in college can read. The information is all out there. It's a choice to pay attention or not.

3. Why do people continue to believe that they are “in control” of their debt long after it should be apparent that they are not?

No clue. I haven't had a debt problem - probably because of the need to control in general.

4. Why are college students who have no income allowed to have credit cards at all?

Which college students have no income ? Both of my kids in college have income - one from jobs and the other from a combination of job and stipend. This question also presumes that someone else should be controlling what a legal adult can do. I think as many 35 years olds spend more than they has as do college students.

There are parents who teach their kids about money and there are college students who graduate without credit card debt. What would the post looks like ? Why would a college student not in debt post ?

rad
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"What can parents do to teach children about managing money?"

I don't have any kids, but my 30-year old friend has a 12-year old whom he has really, really raised right. When I was getting to know the two of them, here are the two main things I noticed about how he's taught her to think about money.

1) She has a 3-part piggy bank type apparatus, and every time she gets any money, a third goes into long term savings (for investment), a third goes into short term savings (for when she wants something expensive), and a third is her pocket money.

2) Once, we were shopping and walked by a display of the new (at the time) Sims game. He asked if she had the money and she said something like "I get my allowance tomorrow..." and he said "But, you don't have the money now. If you still want it tomorrow we'll come back." and that was that. A real "teaching moment." I also watched her once very carefully comparison shop for lava lamps, and you could see the gears turning as she considered whether it was really worth the money. In the end, she bought the lamp and was happy, but it wasn't an impulse buy.
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I remember the priest telling my good Catholic parents "don't worry the children with money issues". In retrospect, I think that's pretty dumb advice. I loved your part about a bicycle being ten afternoons of mowing lawns or twenty movies. It's too late for me, and probably too late for my children.


Chandra gets an allowance. Her main frame of reference is, "how many weeks will I have to save to get that?" Anything more than 2 and she's frustrated.

Sometimes she's good about it, choosing things, or setting a goal. But most of the time, she spends the money as soon as she gets it. She knows if she spends it all, she won't get any more candy or gum or anything until the next "payday" but she still isn't looking foward.

But, she's 7, I have time to work on this!

Ishtar
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HoosierDeb:

I thought the posting from the other person, inquiring about how "we" got into debt, for the supposed reason of hoping to avoid credit card debt, was offensive. I'm not here for anyone else's amusement, nor to explain the "why" of it. If I did wish to explain it to anyone else, I might explain it to you, because you aren't merely curious, or demanding an explanation. My conclusion? It's just nobody else's business. We're just in debt, and getting out of it. It doesn't require explaining to others; but you and I can chat about that.

I don't fit your age demographic, btw, I'm much older, and therefore I want you to know that cc debt is not just an affliction of people 28 and under. I was born and bred a Hoosier though, and now I'm in the Rocky Mountains.

I see such indebtedness as a very old game. According to the Bible, an ancient practice was to enslave a man and his entire family for non-payment of debt, so debt for some, can be very profitable for others, and therefore, a benefit.

There are numerous forces at work in the world, all of which you touched upon. Most of them are entrenched and operant long before we arrive on the scene with our immature assumptions about life and our methods of living it. It boils down to the nature of Good and Evil.

We are the proverbial ducks, swimming in the barrel and indebtedness is the hunter. The faster we swim, the less likely we are to get our tailfeathers shot off.

You might think, with the excellence of education, there would be elementary instruction in these matters, but there doesn't seem to be much that goes beyond theory, when we needed application.

Indeptedness indicates an imbalance that we all work to correct. I think that we could venture too far toward punishing ourselves/others if we probe too deeply, before the general public. Still, I think we'll learn something about it before we're done with the topic. Say on HoosierDeb.

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Wow a very long post but a good one. Thank you for your time and insite.
I agree with you that children need to be taught the value of money and how to budget early.

I remember my parents teaching us the lessons of "life" with regard to money, very early in my life. I never had things given to me I always had to earn them. I had a savings account at a very young age and I was always excited to see my balance grow, even if it was just a little.
I used to collect bottles and return them for the nickel deposit( here I date myself) and it felt so good,I felt so empowered.

I do not have children myself but I do have a niece and nephew that I see regularly and I try to impart to them the lessons that I learned. They are already learning at the young age of 6 and 4 how to work for their money and to save some of it.

I wish your brother success in becoming debt free.

Linda
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I've always been of a "saving" mentality and debt worries me.

I don't know exactly where that came from except that my parents always paid everything off every month. I don't think they ever had a car payment.

One of the things I remember being repeated over and over when I was a child (and now, too) was "Actions have consequences." not just over money issues. I was taught that before taking an action, be willing to take the consequences whatever they are. It just so happens that a lot of the time I'm not willing to take the consequences. I think a lot of people don't want/haven't been taught to think that way over an awful lot of things. And I think it is something you have to learn; I don't know that it's something you're born with. I think that there's an "Oh, yeah" moment for getting out of debt. Someone in the thread said that they were shocked and amazed they could pay cash i.e. they realized that the consequence of saving money was to be able to pay something and not have to worry about the debt, the "oh, yeah" moment.

I have debt right now and I hate it. But I chose to take it on to help a friend and I don't regret my decision but I do want it GONE.

Thanks for an interesting post.
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1. What can parents do to teach children about managing money? I've already mentioned some by implication: set limits, and stick to them. “One or the other, not both.” How can the lessons of money management be adapted to a child's college experience so that there is a transition from dependence to independence?
First off, I think you need to start teaching children about money before the first time they ask for something. And I think that includes things like giving them an allowance to manage as well as including them in household financial decisions and sharing things like the budget. I think the trick, though, is to teach them about money management well before they reach college age so they've already made the transition to managing their own money before leaving.

When my kids were 8 years old, we were building our current house. DD loves going out to dinner, but we cut way back on that during the construction because we were in massive savings mode. So one night when she asked if we could go out to eat, I told her that we could, but as we only had so much money, if we did that, we'd have to take it from somewhere, and I let her decide between going out to dinner that night or going back to the lighting store where we had spent the day so that she could pick out a less expensive light for her bathroom. I was prepared to live with either decision, and I wanted her to understand that each choice comes with consequences. I must have done something right, because she chose to have dinner at home and keep the fixture she'd picked out.

The kids are almost 12 now, and I give them each $10 a week for allowance. It's not tied to any particular chores as I don't get paid for doing the dishes or the laundry. Household chores are expected to be done, and they have their set chores as well. They have 3 envelopes into which they put their money - short, medium, and long. They put a set amount in the basket at church each week, they pay for birthday and Christmas gifts [which tends to come out of medium because you have to save for it], and they provide themselves with spending money for the fairs in town each week.

I also told them that they must pay for half of their 8th grade trip, so they're saving for that in their bank account and already have the money. And anything they put into their DRP's is also matched by Mom dollar-for-dollar. They love matching funds!

The hardest thing that I have found to do, though, is to watch them waste their money, but it's their money, and I don't think they'll learn the lessons if they don't have some rough spots, and from what I've seen, they really aren't very wasteful.

I also intend to get them each a credit card in high school so that they can have some experience charging and learning how to track what you've charged so you don't spend more than what you have available. I'd rather they learn that lesson at home and before it's a large amount of money. Plus, they see me charge virtually everything, and although we talk about how I pay it off each month, I want them to understand that they also need to do that.

And I've taught them about compound interest and how it works both ways.

These are all lessons that I think any parent should try to teach their child, though I realize that sometimes the kids will take the road you don't want them to anyhow. All we can do as parents is our best. The kids, ultimately, will have to responsible for their own decisions and the associated consequences.

2. What can institutions of higher learning teach young adults? How can the sense of entitlement and the psychology of debt be brought to light? Why don't workshops or little “financial responsibility” meetings work? Why don't students attend, and if they do, does it really sink in (hard to hear warnings over a self-playing mantra: “just make money, you're responsible, you'll be fine.”)
Nothing. I want the schools to be teaching academic lessons, and from what I can see, they don't have enough time to teach all of that, so I certainly don't want them teaching my kids about money. I don't think it's their responsibility, and I'm not convinced they can do a better job than I can.

3. Why do people continue to believe that they are “in control” of their debt long after it should be apparent that they are not? Also, why do people start to think, "My Visa still has $100 left on it," instead of "I am nearly maxed out on my Visa." I know a lot of people who think of the difference between their balance and their credit limit as money they can use.
I don't know as I've never had any debt other than mortgage. And as I tell my children, you cannot afford something if you can only make a minimum payment. You can afford it when you can pay for the whole thing. A lot of this, I think, is because people just don't want to wait for anything, and if they can get something now and stretch out payments, they feel like they deserve it. I don't share that particular philosophy, but I can only manage finances for my family, so I'll just start there and try to keep us on the straight and narrow.

4. Why are college students who have no income allowed to have credit cards at all?

No idea, and I find this to be a ridiculous practice. When I was in college, it was not possible to get a credit card without an income, and so I had to have my brother co-sign for me. I needed a credit card for things like plane tickets and hotels for all those interviews. And although the expenses were reimbursed, I had to pay for them upfront.

Not all college students have jobs in school. I only worked during the summer in college. That's because to get a job on-campus, I first had to pay back my financial aid. And to get a job off-campus meant I'd have to walk, and that just wasn't a safe thing to do, so my folks gave me $10 a week allowance which covered my spending money and meals on Saturdays and Sundays because I was only on the 5-day meal plan.
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what a great post! and you're right about so much of it... college age adults are ripe for the pickin', since they're usually fresh on their own, away from Mom and Dad, and probably don't have enough extra to tide them over between school loan checks. haha.
I didn't have a credit card until I got married to a guy w/CCards. when I was 15, my parents "paid" me $20 a week (no permits until 16 yrs old here). I had to buy EVERYTHING with that $20, school clothes, school supplies, lunches if I didn't brown bag it that day, movies, pizza, everything. when I was 16, I had to get a job, or take loans from my parents at 25% interest. (needless to say, not much loaning going on).
I wish I had learned a little better about the CCards, though. I should have taken more "loans" from Dad, and learned about the interest.
You're right, though, about 'keeping it to themselves'. I didn't know what was given up to get my brother and I the things we had. and I see myself wanting to give my kids more than I can afford, just because it makes them happy. DH is full time student (weekdays) and part-time worker (weekends), and I'm full time 3rd shifter, so time wtih kids is at a premium. I *know* I buy them things because I feel guilty! :-) I'm working on that. I try to instill the value of things as they understand: that pack of YuGiOh cards is 6 weeks allowance. That Barbie will take the youngest child 18 weeks to save up for ... time is an ambiguous comcept at my kids' ages, but we're working on it ...
~RedMolly (who started a huge post about why I got into debt, but edited it to remain on topic, I'm so proud of myself, LOL)
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you're right about so much of it... college age adults are ripe for the pickin', since they're usually fresh on their own, away from Mom and Dad, and probably don't have enough extra to tide them over between school loan checks. haha.

I'm a little tired of hearing what idiots college students are. Maybe some of there are but why tar them all with the same brush ? There are quite a few responsible young adults out there. There are people who can handle money well at 10 and people who can't handle money well at 50. Some people handle responsibility well and some don't and I don't think age has much to do with it.

rad
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Wow, Deb, great post.

1. What can parents do to teach children about managing money? How can the lessons of money management be adapted to a child's college experience so that there is a transition from dependence to independence?

I think this depends on the kid. Some can learn through workshops, etc. Others have to learn the hard way. At best, I think we as parents have to model responsible attitudes and behavior with money. I think it's also important that kids get their lessons in age appropriate ways. When a kid is entering adolescence, maybe it's a good idea to sit down and explain the family budget. Get them involved early. Even with these tools, though, kids have to make it a priority for themselves. You can't do it for them.

2. What can institutions of higher learning teach young adults?

About money and budgeting? A lot if the kid is willing to listen. But I think it has to start before they get to college. Like high school or sooner.

How can the sense of entitlement and the psychology of debt be brought to light?

Boy, this is a huge part of the equation! And it's not just "the kids" who need to learn it. Our culture, especially in the recent boom years, really drove home the idea of entitlement. The whole idea is the focus of advertising. From "you deserve a break today!" to the whole "priceless" campaign that Mastercard is running, the idea of entitlement is hammered in daily. They crate a void and we rush out to fill it.

Why don't workshops or little “financial responsibility” meetings work? Why don't students attend, and if they do, does it really sink in?

For the same reason that the drinking and driving messages don't sink in; kids are immortal. Show of hands--how many of you said, "Oh, that won't happen to me" at some point in your teen years? If I were a twenty year old and heard the words "financial responsibility meeting", I'd skip, too. Go and get nagged? When there's that wicked kegger at Tri Delt? Uh, sorry. I've got better things to do.

3. Why do people continue to believe that they are “in control” of their debt long after it should be apparent that they are not?

Reality is scary. "I can stop drinking/(ab)using/ whenever I want because I'm not an alcoholic/addict/user." It takes a lot of honesty and courage to look honestly in the mirror and say, out loud, "I am out of control and I need to stop".

Also, why do people start to think, "My Visa still has $100 left on it," instead of "I am nearly maxed out on my Visa."

Wish fulfillment. Denial. Abduction by aliens. So many people have a hard time, at least in the American culture, understanding that a credit line isn't the same thing as money in the bank. It goes part and parcel with "needing" the latest thing. "I've got a $20,000 limit on my Visa, so why not?"


4. Why are college students who have no income allowed to have credit cards at all?


I'm curious. Do the credit card companies have to pay the school to set up the sign up tables at the Student Unions? Or do the schools get a kick back for every student that gets signed up? With debt being what it is now, you'd think schools would do more to limit the access to credit cards. Oh wait...free speech, freedom of choice, free will. Never mind.

Gena
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Rad,
I'm sorry, I really didn't mean to stereotype, which is exactly what I did, I see that, and I should have explained the "haha" which is "my DH is 40 and is back at university for a teaching certificate right now and we love the school loan checks, haha at us". the "ripe pickin's" was sheer sarcasm: the CCard offers have increased 315% since DH went back to school, we get at least 3 a day.
~RedMolly, who will be more careful in future posts
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Scholar Gypsy,

I think I'm probably about your age, but the Bible (old testament) also talks about debt forgiveness every seven years.

I think debt enslaves us all by itself now, and it is up to us to get ourselves out.

While I'm with you on keeping reasons for debt personal if that is what you'd wish, the "teacher" in me wants to inform others to keep them from making the same mistakes if possible.

In 1986, my husband and I came out of school with no debt other than school loans (seemed gargantuan and the time, but I think they were around $15K and $25K). He didn't have a job at the time and we ran up $10K in CC before he landed something. It seems we've been behind the eightball ever since. I think it was also some deep-seated thing to provide well for our son who sacrificed along with us so that I could get my graduate degree and dad could teach at a christian day school (read--- pays not a whole lot in $$). By 1998, we had about $65,000 in CC, had just purchased a home in SoCal for $172K (with mortgage of $165 -- do the math!), and soon afterwards, finally come to some conclusions about debt reduction. But not until our CC debt ballooned to $78K in the summer of 2001 when I said ENOUGH!!! Got DH on board with budgeting and we have had a good run since then.

Now we are looking at about $24K in CC (two cards, 15K at 0% until May then fixed at 7.9%, and the rest at 3.9% for life) and we just refi'd at 5.5% for $188K (Home has appreciated to $285 in 4.5 years!!! We dropped PMI and our escrow account in one swell foop!). No other debt and two newish cars (1997 Rav4 and 2001 Camry) paid for (purchased and paid for after 1998).

My goal is to pay off CC by the end of this year and then pay off the extra in the refi so that we have all vestiges of the old life paid off. Then we build funds here and there for emergency, vacation, next car, etc. Oh, I'm already funding my SRA at about 7K per year and my school pays 11% of my income into a 403B. That's standing in the 160K+ range right now (would be better if the stock market hadn't tanked!)

Hmm. Don't know how I got onto this but it feels good to come clean after three or so years lurking on this board.

Hershey's mom (debt free in 2003!!!)

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Hoosier Deb,

Great post! Reading this made me think way back. I don't ever remember my father sitting me down and talking about money. He did remind me over and over that it was my job to figure out what I wanted to do in life and please make it something I could make a decent living with. I've posted here before that I remember him talking with my brother on numerous occasions about money, saving it, investing, buying a home, retirement, etc. However, with my memory given a jog by your post, I remembered little ways he tried to lay the ground work for my brother and I to live "fiscally fit" lives. Every Sunday after church we would drive to a newstand and he would go in to get the big Sunday paper, my brother and I were each allowed a comic book and a pack of gum. Every week he'd say, that pack of gum has to last until the next Sunday, and being careful I could make it last. I remember saving dimes from my allowance to buy my Barbie doll and I still have it (I've moved five times and you'd never believe the comments the movers make about moving my original Barbie house). When I was in high school I can remember going to Lenox Mall in Atlanta with twenty bucks in my pocket and thinking Wow, I'm rich! and it seemed to stretch forever. Wish I could get that feeling back! I'm a Hoosier also and my late parents were dyed in the wool Midwesterners who lived through the depression and made a better life for themselves and their children. I used to think that my father was the meanest Dad in town because he told us that if we wanted a car, we had to save up for it, buy it, get insurance and pay for the insurance. My next door neighbor had a snazzy Mustang to drive, while I was driving a 64 Rambler station wagon. But, I realized down the road that my father did us a favor by insisting upon this.

I think my spending got out of control after I started working full time and could get whatever I wanted. I remember being on vacation with a friend who made way more money than I and she suggested that I take a cash advance on my Visa card in order to have a little more spending money.......after that I was off to the races. I'd pay it off and then it would go back up again. Now that I have a mortgage and believe you me I worked hard to get my credit up to snuff to get my home, I don't want anything to jeopardize it. I've simply gotten tired of robbing Peter to pay Paul and so I've decided to get in better fiscal shape. I honestly think it will be easier to pay off some credit card debt than to say I'm going to lose 25 pounds in 2003!
Thanks Hoosier Deb for your thought provoking post. Susan
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HoosierDeb "4. Why are college students who have no income allowed to have credit cards at all?"

Primarily because the issuers are trying to build brand loyalty. Also, low limits and high interest rates generally make for a decent income and likelihood of bankruptcy filing is probably years away.

Regards, JAFO
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1. What can parents do to teach children about managing money? I've already mentioned some by implication: set limits, and stick to them. “One or the other, not both.” How can the lessons of money management be adapted to a child's college experience so that there is a transition from dependence to independence?


Deb,

Your post was great. It really got me thinking about teaching my son about money. He's saved some god-awful amount of money to himself (a $100? Some amount over that?) and is thinking about buying a Dreamcast on eBay so he can play Sonic games.

I was a bit disturbed by that. We bought him a PS2 for his last birthday (a few months shy of a year ago) and he's got more games than I can keep track of. He's doing it purely as a childish form of "Keeping up with the Jones-es". His best friend has a Dreamcast and a PS2. He wants to keep up with her.

I knew part of it was just that we taught him how to save...but...he doesn't know what to *do* with the money once he's saved it. And, I'm not talking about investing. He has money going to that. It's the money he gets *to* spend on himself that we fell short of teaching him about. He basically just throws it in a box till he has a whole pile and then he looks around to see what he can blow it on. It's not budgeting so much as a form of his own personal quarterly lottery.

Reading your post, I realized my husband and I do the same thing as your parents. We shield him from most of the financial issues. I *do* make a point of commenting every now and then that we pay our CC off every month and we get a rebate for using it. I don't tell him CC's are bad, but, I *do* make a point of expressing they're dangerous. My husband and I are about to sit down and rework the budget -- I'll have Ben sit in on it. I think it may also be time to move into the 'next step' of personal finance and make our son 'responsible' for paying for something else, while increasing his allowance. He used to manage his lunch money, but, we changed the way he eats so he doesn't eat school meals anymore. Buying a daily half-pint of milk isn't nearly as challenging ;).

So, I don't know that I have any suggestions, but, your post really made me think.

Gwen


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This is such a great post, I have had about exactly the same experience! And I bet we are not alone! anyways, thanks for writing it, I am going to print it out and give it to my stepson who just turned 18 and is going away to college!
V
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