While at home from college last summer, Kenneth Green received a letter that led to a valuable lesson. After opening it, he was pleasantly surprised to find an opportunity for him to sign up for a credit card with a spending limit of $500.
“I was like ‘wow.’ They’re giving me all that money and I wasn’t even working,” said Green, a 20-year-old student from Indianapolis.
Without consulting with his family or anyone else, Green signed up for the credit card. What he didn’t fully realize, however, was that the credit card company expected him to start making payments immediately.
Thinking the matter would somehow go away, Green ignored the company’s written payment pleas for several months. Even worse, he didn’t share the situation with his family until interest and fees took his debt from $500 to more than $1,300, and a collection agency threatened him with a lawsuit.
“I didn’t read the fine print,” Green said. “You should always do that.”
Green is among millions of teens and young adults who start with a clean financial slate, but end up being held in bondage by punishing debt and poor credit due to bad decisions.
Before some of them even graduate from college, many are encumbered with debt from credit cards, student loans and various expenses that could have been avoided. Their poor credit ratings often interfere with everything from buying a house or new car, to getting an apartment or job.
“Young adults are just starting to build their credit history and face many financial temptations,” said Jason Alderman, director of financial education programs for Visa. “If they’re not careful, a few ill-thought decisions made now could damage their credit for years to come.”
According to the Center for Responsible Lending, debt among 18 to 24-year-olds increased 104 percent between 1992 and 2005.
Research from a national survey conducted by Sallie Mae, a provider of student loans, recently indicated that more than 91 percent of college undergraduates have at least one credit card, with an average of $3,173 in credit card debt.
Furthermore, the average graduating college student owes $20,000 in student loan debt.
Community organizations, and even some credit card companies, are working to help youth and young adults make the best financial choices.
Locally, Community Action of Greater Indiana (CAGI), Junior Achievement of Central Indiana and 100 Black Men of Indianapolis are among the groups that have stepped up to provide financial literacy programs that use fun and interesting ways to teach financial management and good credit choices.
According to a study shared by CAGI, 52 percent of teens are eager to learn more about money management, but less than 15 percent actually have taken a class on the topic.
Jennifer Burk, President and CEO of Junior Achievement, believes making sure students understand finances early on is a very important goal the entire community should rally around.
“This is a really important goal, and now more than ever,” Burk said. “Young people must become financially literate so that they can become successful adults.”
Junior Achievement offers several programs, designed for students from kindergarten all the way through the senior year of high school that educate in the areas finances, entrepreneurship and work readiness.
“Our programs really serve to both educate and inspire kids to be prepared to enter the workforce and be financial responsible throughout their adulthood,” Burk said.
CAGI’s solution was to create the Count Your Cash (CYC) Money Management program, which exposes participants to the fundamentals of managing a personal budget, the structure of banking and checking services, the importance of saving, preparing for college expenses and investment vehicles.
Joining in on the effort, One Hundred Black Men of Indianapolis provides its Dollars and Sense program in partnership with the University of Indianapolis, where students meet weekly with a professor and “100 mentors” to learn financial skills and access investment portfolios to compete for cash prizes in local and national competitions.
The program is delivered in sessions with groups of students who receive instruction through lectures, interactive role-playing and games regarding money-management principles.
Generally, experts encourage students and young adults (perhaps with assistance of parents) to learn how to use a bank or credit union account, keep track of all transactions in a check register, review their account online, use credit cards responsibly and when it comes to student loans, only borrow what is needed.
As for Green, he met with a representative for the credit card company who agreed to an affordable settlement. His credit, however, had already been damaged by nearly a year of non-payments. Still, he remains optimistic and chooses to glean something positive from the experience.
“This really taught me the importance of financial and credit management,” he said. “I have a job now and know what needs to be done when the check arrives. I get it now; I just wish I had known all this before.”
For more information about financial literacy programs, contact the following organizations:
– Community Action of Greater Indianapolis
Cagi-in.org
(317) 396-1800
– Junior Achievement of Central Indiana
Ja.org
(317) 252-5900
– 100 Black Men of Indianapolis
100blackmenindy.org
(317) 921-1276
Common financial tips
Banking
• Look for a bank/credit union that charges no monthly usage fee, doesn’t require minimum balances and has conveniently located ATMs so you don’t rack up out-of-network ATM charges.
• Enter all transactions in the check register and review your account online regularly to know when deposits, checks and purchases have cleared.
• Don’t write checks or make debit card purchases unless the current balance will cover them – many transactions now clear instantaneously.
• Banks must ask whether you want overdraft protection. If you opt for coverage, understand that overdrafts can be expensive – up to $35 or more per transaction.
• Request text or email alerts when your balance drops below a certain level, checks or deposits clear, or payments are due.
Credit Cards
• Always make at least the minimum payment – on time – each month.
• Strive to pay off the full balance each month; otherwise, the accumulated interest will add significantly to your repayment amount.
• Avoid using credit cards for cash advances, which often incur upfront fees and begin accruing interest immediately.
• If you absolutely need a card, look for one with no annual fee and compare cash advance, late payment, balance transfer, over-the-limit and other fees.
Student Loans
• Know Your Loans – It’s important to keep track of the lender, balance, and repayment status for each of your student loans. These details determine your options for loan repayment and forgiveness.
• Know Your Grace Period – Every loan has a grace period, which is how long you can wait after leaving school before you have to make your first payment.
• Stay in Touch with Your Lender – Whenever you move or change your phone number or email address, tell your lender right away. If your lender needs to contact you and your information isn’t current, it can end up costing you a bundle. Open all mail from your lender.
• Don’t run – If you’re getting unwanted calls from your lender or a collection agency, don’t stick your head in the sand – talk to your lender! Lenders are supposed to work with borrowers to resolve problems, and collection agencies have to follow certain rules. Ignoring bills or serious problems can lead to default, which has severe, long-term consequences.
• Pick the Right Repayment Option – When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options, and you can change plans down the line if you want or need to.
• Don’t Panic – If you’re having trouble making payments because of unemployment, health problems, or other unexpected financial challenges, remember that you have options for managing your federal student loans. There are legitimate ways to temporarily postpone loan payments, such as deferments and forbearance. But beware: interest accrues on all types of loans during forbearances, and some deferments, increasing your total debt, so ask your lender about making interest-only payments if you can afford it.
• Lower Your Principal – When you make a federal student loan payment, it covers any late fees first, then interest, and finally the principal. If you can afford to pay more than your required monthly payment – every time or now and then – you can lower your principal, which reduces the amount of interest you have to pay over the life of the loan.
