Unmanageable credit card debt and student loans can ruin students' futures if they do not become aware of the dangers that lurk in the fine print.
The University of Memphis' Center for Economic Education is sponsoring a Financial Literacy week to educate students about the pitfalls of credit cards and loans. The U of M will sponsor a financial literacy IQ quiz, and the student with the highest score each day will receive a $100 textbook scholarship from The University bookstore and First South Credit Union. At the end of the week, a drawing of all the students who took the quiz will be held, and the winner will receive an iPod touch.
On Monday, Sen. Bob Corker spoke at the Campus School to fourth-grade students about financial awareness. Corker also spoke in The Zone in the FedEx Institute of Technology about "the intersection of Wall Street, Main Street and Pennsylvania Avenue" and his views on the bail-out plan.
Last week, Tiger P.A.W.$ (Peer-to-peer on Assets, Wealth and money) spoke to the ACAD classes about credit cards. Julia Heath, professor of economics and director of the Center for Economic Education at The U of M, said the group will be available to speak for the rest of the year to any organization that asks them to present.
A Nellie Mae study shows 91 percent of final-year students own credit cards, twice that of the 42 percent of freshman cardholders. The study shows only 21 percent of undergraduates pay off their credit cards every month, while 44 percent pay more than the minimum payment but still have a balance.
Heath said student debt is running rampant at The University and all over the country. She said part of the problem stems from parents not teaching their children about their finances and schools not teaching students about credit cards and debt.
"It's like giving a kid a set of car keys without experience or a license," Heath said.
Students do not read the fine print of the back of their credit card agreement, which include information about penalties, Heath said. Some credit cards will offer no interest for 30 days or more, but if the card holder does not meet all of the requirements interest can jump to 20 percent or more. Going over the card limit, paying the minimum payment late, or paying below the minimum payment can cause these increases, she said.
Nellie Mae's study showed that the average outstanding student credit card debt in 2004 was $2,169.
In the worst case scenario, a student drops out of school because his or her debt is out of control. Heath said students who do not have to drop out but are not financially savvy, leave school with large credit card debts along with student loans. A careless cardholder who "thinks they can charge the pizza for several weeks," can lower their credit score. A low score can stop a person from buying a house or getting a job in the future, Heath said.
"Misunderstandings about credit cards, loans or other payments can cause you to be playing catch-up for the half of your life," she said.
Kevin Andring, physics graduate student, said he has a credit card but uses it rarely so he can safely build his credit score.
State Rep. Lois DeBerry sponsored a bill banning credit card companies from soliciting on college campuses in Tennessee. The bill was made into law July 1, 2008. The Campus School at The U of M is trying to slow this problem by educating fourth-grade students about the financial world. Susan Bingham, fourth grade supervising teacher, said the students in her class are having fun with the lessons in the Financial Fitness curriculum. She taught them about taxes, income and credit cards. The students discussed what they could do to earn money or an allowance, like raking leaves or making lemonade.
"The children are very interested anytime you mention money, but they have learned a lot about paying taxes and credit cards," Bingham said.
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