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HSFPP Update # 222— Learn from My Mistakes or You Might Become a Statistic, Too
Message from Flashman: The Credit Card Accountability, Responsibility and Disclosure Act of 2009 was signed by President Obama this May. A portion of the law went into effect in August of this year, but the section that will affect teens the most will go into effect in February 2010.The act provides new protections for college students and other young adults, which are covered in this week’s story In the New$.... The law also includes a requirement that card issuers and universities disclose agreements they make for marketing and/or distribution of credit cards to students. We will do a follow-up story related to other sections of the law in January, before other provisions of the law take effect.
Note to Educators in Kentucky:
This week’s update is in line with academic expectations listed below. Additionally, the news article will help reinforce the budgeting section presented in Unit 2 of the HSFPP curriculum; as well as update Unit 4: Good Debt, Bad Debt: Using Credit Wisely.
Academic Expectation 2.18
Students understand economic principles and are able to make economic decisions that have consequences in daily living.
Academic Expectation 1.2
Students make sense of the variety of materials they read.
Academic Expectation 2.30
Students evaluate consumer products and services and make effective consumer decisions.
Web Site Picks of the Week:
“The Truth About Teens and Credit Cards”
“How Teens Get Sucked into Credit Card Debt”
“Credit Card Calculator: The True Cost of Paying the Minimum”
The bankrate.com Web site, with its calculator for figuring the true cost of paying the minimum each month on your credit card bill, is a great hands-on activity for students.
In the New$… Learn from My Mistakes or You Might Become a Statistic, Too
By Janet Marks, graduate student in Family Studies at the University of Kentucky
As teens you may go to the malls weekly and, every time you go, find that there is a new hot item available to buy. Every few months there is a cell phone upgrade, a hot new pair of sneakers, or something else new that teens want to buy. Along with these hot items also comes a high price tag. That seems to be the price of popularity. But don’t worry: as the TV commercials say, you have your credit card for the things you need in this world, right?
If you don’t have a credit card now, don’t worry; over the next few months you will be flooded with credit card offers before the marketing section of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 goes into effect. The legislation bans credit card offers to anyone under the age of 21 unless they have an adult cosigner or can show proof that they have the means to repay the debts. The new law, which goes into effect in February 2010, also says that those under 21 must get permission from a parent or guardian to increase credit limits on joint credit card accounts.
For those seniors preparing to attend college next year, I will give helpful tips on what and what not to do. When I was a freshman, I thought, “Wow! Now I can go out and buy whatever I want and not have to worry about having the money because I have several credit cards to choose from.” Having 11 credit cards was the worst mistake I could have made. And one of the reasons for the new law is to keep credit cards out of hands of young consumers who might not understand that they will have to pay back all the money they spend, plus interest, and on time each month, or face heavy penalties.
As a teenager, you need to think about what is important and what matters most to you. Having a credit card is not bad, as long as you don’t misuse it and you have a job or steady income so you can pay your monthly bill in full and on time. What happens when you don’t pay on time? Your credit rating suffers. This applies to credit cards, car payments, insurance payments, etc. Keep reading and I will give examples of what can happen. Dave Ramsey says, “Over 80% of graduating college seniors have credit card debt before they even have a job! The credit card marketers have done such a thorough job that a credit card is seen as a rite of passage into adulthood. American teens view themselves as adults if they have a credit card, a cell phone and a driver's license. Sadly, none of these ‘accomplishments’ are in any way associated with real adulthood.”
Having credit cards is not the way to teach responsibilities to a teenager. Having credit cards teaches a teenager that you can go out and buy whatever you want and not have to pay for it all up front. As a parent, I try to teach my child how to save money in case of an emergency. This is something we all should learn as we grow up.
Look at the following statistics:
- 19% of Americans between the ages of 18 and 24 declared bankruptcy in 2001. (USA Today, 2001)
- The fastest growing group of bankruptcy filers are those 25 years of age or younger. (Senate Committee on Banking, Housing and Urban Affairs, 2002)
- Over 80% of undergraduates have at least one credit card and nearly 50% of college graduates carry four or more credit cards. According to the U.S. Department of Education, the average balance carried by these students is more than $3,000. (Senator Christopher Dodd, CT)
So what happens to you once you’ve graduated college? If you have a bad credit rating because you’ve misused credit cards, you probably won’t be able to buy the car you’ve always wanted, even with a good job. You’ll probably have trouble finding a place to live, as landlords check your credit history, too. So do many employers, as part of your background check, which could even mean that you won’t get the good job that you might otherwise be qualified for. For all these reasons, you must learn how to manage your money well and know that, if you have a credit card, you had better not abuse it.
It is best to check your credit regularly. At your request, each of the three major credit reporting agencies is required to provide you a free annual credit report. You can request your credit report from them all at once or from each of them separately. Requesting your credit report from one of the three credit bureaus every four months allows you to check your credit three times a year, which is a good thing to do. Identity theft is real, it can cause a great deal of trouble, and it can happen to any of you, especially if you don’t protect your personal information such as your driver’s license, Social Security, and credit card numbers. So be sure to request your free annual credit report from each of the following three major credit reporting agencies:
As most of you are minors, be aware that you will likely need to have your parent or guardian apply for you in writing. Once you turn 18, you can get your credit report on your own. Just be sure to keep your credit information private!
Source: Daveramsey.com, “The Truth About Teens and Credit Cards” http://www.daveramsey.com/the_truth_about/teens_and_credit_cards_3592.html.cfm
- Do you think the passage of The Credit Card Accountability, Responsibility and Disclosure Act of 2009 was a good idea? ___ Or a bad idea? ___ And why?
- Do you have a credit card? No ___ Yes ___. If Yes, do you make your monthly payments on time, every time? Yes ___ No ___.
- If you have a credit card, do you pay your full balance each month? Yes ___ No ___. If not, do you pay only the minimum balance most months? No ___ Yes___. If not, please explain why you sometimes carry a balance.
- For the purchases that a teenager typically makes, and with the limited amount of money most teens have, do you think it is necessary for teens to have a credit card? No ___ Yes ___. Explain.
- How did you feel about the article, “The Truth About Teens and Credit Cards,” quoted in this week’s news story? Do you think Dave Ramsey is being too harsh? No ___ Yes ___. Do you think young people are ready for credit cards? No ___ Yes ___. What do you think is needed to make young people ready for credit cards?
Follow-up Activity for Teens Who Have the Student Guide:
Complete the activity from the Web site below. Print out your results and be prepared to discuss the questions in class. If you do not have the guide, go to the following link and complete the activity.
Go to the Web site, http://www.bankrate.com/brm/calc/MinPayment.asp. This is a calculator for figuring out how much you would have to pay on a credit card if you only paid the minimum each month. Calculate your minimum payment and how much interest you would owe with these three sets of numbers. It will automatically put in the minimum payment when you click in the text box. Click “calculate” to get the interest. Be prepared to explain the consequences of only paying the minimum. What else have you learned by doing these calculations?
Balance and Interest: $600 (at 9%, 18%, & 14%), $450 (at 9%, 18%, & 14%), $750 (at 9%, 18%, 14%).
Kentucky High School Financial Planning Program
The purpose of the HSFPP financial updates, video lessons, and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP, updates, and video lessons meet Kentucky core concepts. The Web site, updates, and video lessons are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.
If you are not already on our listserv:
The video lessons are available only to members of our listserv and will not be posted to the HSFPP Web site because of the timeliness of the information. If you would like to receive our video lessons, which are sent to our listserv biweekly, on alternate weeks from these updates, please sign up at the following page of our Web site: http://www.ca.uky.edu/hes/fcs/HSFP/response.htm.
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