Credit Cards and Financial Management among Teens - Essay Example

Financial Management al Affiliation) Credit Cards and Financial Management among Teens Availability of credit cards continues to leave young people in debt. College students are typically bad risks and are easy targets for credit card companies.  Credit card companies continue targeting low-income earners and college students due to their lack of financial stability.  In 1996, less than thirty-year-old consumers owed an average of $2,400 on their credit cards, almost a triple of what they owed in 1990.  If, payments of $100 are made monthly to pay off a $2,400 debt, it would take 2 years with a 16 percent-rate card, and one would pay $ 750 in interest.  Stephen Brobeck, the executive director of the Consumer Federation of America notes that, "There is no question that young adults are the most heavily burdened by credit card debt." Brobeck says that many teens face the trap of credit cards.  Teenagers waste little time taking on debt after leaving home. According to Teenage Research Unlimited, the number of teenagers with credit cards in their own name is on the rise. Statistics indicate that 41 percent of teenagers between 18 and 20 years have their own cards, and increase of 5% from last year.    Across all age groups, statistics do not paint an appealing picture.  Bankruptcy shreds in America have doubled in the last decade from hundreds of thousands to millions. According to the Federal Reserve, the average household credit card debt is $15,593. In fact, credit card debt is the third largest source of indebtedness among households in the United States. Only student loan debts and mortgage are larger than credit card debt. As at August 2014, the total credit card debt in the United States was $880.3 billion, a 3.19% increase from August 2013.    Most teenagers do not realize the burden they create until credit reports are part of employer considerations when assessing job applicants. The root of the problems of credit cards is when a parent is the co-signer of teenagers’ credit cards.  This allows teenagers to form a good credit history, which eliminates the chances of any credit card approval problems when they graduate and get a job. Consequently, teenagers exceed their limits and ultimately find themselves with poor credit. Parents continue to send their children to shopping malls and movie theaters with no pocket change but instead a piece of plastic.  "Marketing to students is definitely working, as many of them end up signing for as many as five to six credit cards," says Blandin Don, the president of the American Savings Education Counsel, a coalition of public and private sector organizations that undertake initiatives to advance public awareness to ensure sound financial management.  A recent survey by American Savings Education Council indicates that 60% of college students and 10% of high school students do have major credit card. The findings also indicate that only two thirds of the college and High school students pay their bills in full monthly. Financial experts do not agree on how and when to introduce teenagers to credit cards. According to the law, teenagers below 18 years can only get a credit card if their parents co-sign for it.  Credit card companies are wooing progressively younger customers who are all too enthusiastic to flash their plastic.  Teenagers increasingly prefer plastic when given an option of cash and credit cards. As such, credit card companies continue pursuing teenagers through different platforms such as television, mailboxes, at school, and most recently on social media. According to Teen Research Unlimited in Northbrook, III, "Teens are reluctant to swipe those magnetic strips, either.  While teens make up just 11 percent of the population, teens spent hundreds of billions annually."  Francis Torres, the legislative counsel for Consumers Union, the advocacy group that publishes Consumer Reports magazine says that, "Credit card companies are not altruistic organizations" and suggests that e cards are "designed to get the young people of this country addicted to plastic." According to  Nellie Mae, a school loan provider, more than 60% of college freshmen have a credit card. The percentage of students with credit cards rises to 92% at sophomore year. Nellie Mae also notes that on average students bring to college more than $2,000 in credit card debt. Robert Manning, the author of Credit Card Nation: The Consequences of Americas Addiction to Credit supports Mae’s statistics. According to Manning’s survey findings, the numbers of freshmen entering college with credit cards continue to increase over the years. Debates surround the use of credit cards by teenagers. Some experts argue that credit cards help instill financial responsibility in teens. However, statistics on teen credit card debt point out an opposite reality. In fact, providing teenagers with credit cards may teach them to be financially irresponsible. Unluckily, this sad fact makes teenagers a prime target of credit card companies. Salespersons continue to convince many parents and teens that ownership of a credit card is like a rite of passage into adulthood. As Todd Mark, the former director of Consumer Relations for Consumer Credit Counselling Service of Greater Atlanta notes,” Getting a credit card is a rite of passage." Credit cards enable students to purchase goods and services without making immediate payments. Yet what lies after the pleasure of such a free purchasing pattern are a multitude of financial problems due to bad debts. College students are obsessed with credit cards as they bring forth convenient consumption. A card commercial shows a scene with a cardholder dancing in different nations around the world. This commercial demonstrates a practical utility of credit cards. Teens can shop across continents and oceans by credit cards, which eliminates issues relating to currency conversions. This utility of credit cards is valid in the virtual world as online shopping platforms such as Groupons and E-bay accept credit cards. The fact that students can complete the purchases right from their cubes or homes makes shopping convenient. Consequently, credit cards become a necessity for any student or teen. Nevertheless, behind the impressive concealment of credit cards, many students face financial problems from the use of the cards. Businesses easily lure teenagers into overconsumption by using credit cards. Many teenagers end up falling in the debt trap. Most teens are less conscious of their expenditures as payments are processed at the end of the month. In fact, what most teenage users of credit cards know is that they can purchase goods and services without making immediate payment. Overconsumption and subsequent debts are the results. Survey studies indicate that most of the debt of credit cards is due to excessive consumption. According to a survey by the Consumer Council, 70% of the interviewed credit card users’ debts were a result of excessive shopping. The adverse financial burdens of credit cards can strain a teenager and deny them the ability to live a quality life. The effects of credit cards on teenagers are long-term and may define one’s future life. In a discover card commercial that targets parents and college freshmen, parents send their children to college with a credit card for emergencies that may arise at school. The student uses the credit card when a meal situation arises. Later on, the student pulls out the card for stereo equipment and fancy clothes on several occasions, only to receive a surprise visit by the student’s frowning parent. Many people do not understand the working of credit cards. There are catches such as fees and charges that many people are not aware. At least at some point in life issues relating to the credit card industry have traumatized everyone. Regardless of the situation, every student entering college faces credit card tactics at some point.  Main credit card companies are yet to realize the correct target group.  Targeting teens might seem right, but it is actually wrong. There are different arguments on the subject of credit cards. Teenagers and parents end up failing to realize the annual fees and interest they eventually pay. Credit cards have a tendency to destroy credit report if one does not use and payback the funds on time. In the changing financial times where banks and financial institutions have become stricter on lending, one’s credit history is significant in the access of credit. As such, students need to manage their finances to avoid future shortcomings in credit access due to a poor credit card history.  Companies on the other hand use credit report as a tactic to bring more companies.  The American society today believes on a principle of credit, and as such, any main purchases affect a credit check. College life requires is expensive and students require a lot of money to make ends meet. Most students require money for a decent car and for minor expenditures while in and out of school.        However, parents and students alike tend to forget the cost of carrying a card.  Interest rates can lead to depression and stress. Stress and depression is the third cause of death in America. Parents and students should take time and making wise decisions before using credit cards. Credit card companies do not need to solely target teenage students but instead focus on targeting the student’s parents. College students already have enough stress from the challenging college life and credit cards would only serve as a catalyst of more stress. Alternatively, credit companies can target students leaving college, as they are the one who start earning an income with their papers. Additionally, the prevalence of credit cards among teenagers undermines their capacities to monitor finances. The current generation of teens is more materialistic those of past generations. A study by the University of Hong Kong observes that youths aged between19-25 are less likely to amass wealth as they spend on what they desire. Noticeably, credit cards contribute to the current generation of teens’ weaker skills in financial management. This is evident by the fact that most teens love to spend for entertainment. Credit cards can only but worsen the situation because they enable consumers to purchase without the need to pay immediately. Unnecessary expenses among students increase with ownership of credit cards. Teens with credit cards are, therefore, more vulnerable to bearing debts. Credit cards distort students’ conceptions of financial management. In conclusion, teenagers and college students should use credit cards carefully; credit cards can actually bring forth positive influence on teenagers’ life. The cards enable teens to purchase commodities with values beyond an average earning capacity and the immediate paying ability of the teen. To prevent falling in the debt trap of credit cards, teenagers need to manipulate out desires and adhere to good financial management practices. Credit cards are a problem only if one succumbs to their wants and has vague concepts of financial management. In a world that continues to embrace technological advances, credit cards are necessary have item in people’s wallets, including teenagers. Whether credit cards molds or ruins one’s life depends on how they master the cards.  References Sundblad, D. (n.d.). Teen Credit Card Debt Statistics. Retrieved November 19, 2014, from http://creditcards.lovetoknow.com/Teen_Credit_Card_Debt_Statistics Top of Form Bottom of Form Chen, T. (2014, January 1). American Household Credit Card Debt Statistics: 2014 - Nerd Wallet Credit Card Blog. 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Mason, Ohio: Thomson/South-Western. Read More