Robert D. Manning,

The profound shift from consumer credit as an earned privilege (reward for good budgeting and steady employment) to a social entitlement (credit cards as Yuppie Food Stamps) belies the crucially important role of consumer credit in our lives today. Although nearly any student can get credit cards and other consumer loans, this ease belies the greater responsibility and consequences of misusing consumer credit in college. Indeed, as one student lamented to me, "I would never have gotten a credit card if I had known that bad credit would have ruined my chances of getting a good job." This is because your credit score (ranges from 300 to 850) can be just as important as your GPA. Due to Jeff's bad credit history in college, he was astounded that his poor credit score was limiting his job prospects which further limited his ability to repay his delinquent credit card debt. Jeff's poor credit was not easily dismissed as negative information remains on your credit report for 7 years and a Chapter 7 bankruptcy for 10 years. For college students, their primary "job" is to study hard and focus on graduating and pursuing a meaningful career that offers an adequate income. The problem is that many students' basic source of income are loans, family savings, and other resources that may be based on unrealistic assumptions of one's standard of living after college. Indeed, "reality bytes" when the student loan and credit card bills begin arriving together as well as the rent and utilities after leaving the dorm or off-campus housing. The financial shock of a decline in one's standard of living after starting a "real" job is largely due to financial ignorance and the "buy now, pay later" mantra of the Credit Card Nation that no longer requires skillful budgeting to stretch one's resources until the next pay day. We must lean to immediately create a personal budget -- that explicitly distinguishes expenditures that are "needs," "wants," and "desires" -- while specifying tax obligations, student loans, credit card debts, and savings for investment in a tax-deferred account such as an Independent Retirement Account (IRA) or employer-sponsored 401(k) plan.

Robert D. Manning, PhD, is Research Professor and founding Director of the Center for Consumer Financial Services


This story ran on on .