Heading to College? A Quick Lesson on Credit Cards

If you (or someone you love) is heading off to college soon, find a few minutes to have a conversation with them about credit cards.  With the un-ending debate about the national debt and problems with mortgages around America young people might assume that debt is part of the American way of life.  It’s important that we take a few minutes to have a conversation about debt, and what impact it has had on our lives.

Students heading off to college are dealing with freedom on so many different levels, and really learning what it is like to have to budget and make a lot of spending decisions on their own.

  • Debt is attractive.  It seems that when we’re younger (28 seems to be the cut-off) it does.  According to a recent study by Rachel Dwyer and Randy Hodson of Ohio State University and Laura McCloud of Pacific Lutheran University, younger people might “experience debt as an investment in the future” and feel a boost when spending on credit.

I know from personal experience that this is true.  I managed to spend on credit cards during my college years and suffered for it after graduation.  Those nights out are fun while you’re having them, but paying for nights out from years ago while you’re scraping by in your first real job after college is no fun at all.

  • Compared to Student Loans, the amounts are so much smaller.  College students are borrowing at historic levels.  When you’re borrowing tens of thousands of dollars in student loans, carrying credit card debt of thousands seems like a much smaller amount in comparison.
Next comes the ease of access:
  • Swiping is easier than counting cash.  Unless you’re at a restaurant, the amount we are spending is rather invisible to us.  All you have to do is swipe a card and sign.  Spending cash forces us to think about our money in a different way.
When you’re trying to control your spending and make good decisions, cash is king for one reason:
  • Cash is a great scorecard.  I recommend that college students decide on what their weekly entertainment budget is, and take that amount out in cash on the same day each week.  If you’ve got cash and get a late invitation to go to dinner, you may decide that you want to do it.  But if you have no cash in your wallet, you’ve got a choice to make.
What credit card lessons would you add to my list?

For those that want to do further reading on the psychological research, below are a few papers to get you going.

What, Me Worry? Young Adults Get Self-Esteem Boost from Debt – Dwyer/Hodson/McCloud

Spending ’Til It Hurts – Carnegie Mellon

How You Spend Affects How Much You Spend