Some of the posts about the new folks who are here, a question my bro asked me last night, and the post asking us how we got into credit card debt got me thinking about a topic that bothers me from time to time. (when I refer to debt throughout this post, I'm strictly referring to credit card debt, and not student loans, car loans, mortgages, etc.) Become a Complete Fool
I know it has probably been discussed here before, but I want to revisit it. And let me put the caveat at the beginning: I know that credit card debt is no one else's responsibility but my own, and that I cannot blame anyone else but myself. I just want to examine some psychological/emotional/"it-was-my-childhood" reasons that some people get into credit card debt in the first place.
The issue is why so many young adults, between the ages of 18 - 28 seem to accumulate so much credit card debt so quickly, so easily.
First, my credit card debt story:
I was very careful throughout college. My parents had warned me of the dangers of credit cards in a vague way, and I just didn't see the need for one. I had very few expenses that weren't "handled" by my parents. They made me feel as though I was taking care of myself, because I earned enough money each summer to use as my "allowance" during my college years. However, I had such a soft, soft nest during that time (and I didn't realize it) in that my tuition, housing, and food was completely paid up front, by scholarship and by my parents. They still took care of doctor bills, I was under their insurance, and I didn't have a car. I enjoyed what I thought was a rather "ascetic" existence during college: I lived in the dorm throughout, I rode a bicycle that I bought with cash I earned one summer, I didn't go out very much until my senior year, and then, it was cheap, because of ladies' nights, nice bouncers, and guys who wanted to buy me drinks. Hehe. For me, "expenses" included books I wanted to buy, pizza and other non-dorm food, a movie from time to time, clothes (but my friends and I were into thrift store clothes, and I hung out with international students and hippie kids - we wore the same clothes all the time). Little did I know what "ascetic" could really feel like....
I got my first credit card in 1997, a Capital One Mastercard, that my mom actually got for me. She was very clear about the fact that I must pay off any balance right away - in other words, a revolving balance was not okay. I guess I was a good kid, because even though I didn't really understand the repercussions of interest, I did what my mom told me to do. I paid it off every month, and never ran up more than $75 - 100 a month. My motivation was a vague fear - I don't know what I was afraid of. It certainly wasn't interest.
Then, I graduated. Something must have just snapped inside me at that point, because my credit problems all began then. I have tried many times to figure out what happened, and how it happened, and the following are some things I have identified:
1. I had a pathetic job. $12,000 a year as a teaching assistant at a private school, plus $4,000 a year I scraped together with odd jobs around the school, plus about $1,500 from babysitting. I only worked there for three months, when I got offered what I consider my first "real" job.
2. During the "pathetic" job time, I rented a big ole house with a friend of mine in a crack neighborhood near my old college. It was a humongous two story monstrosity that probably should have been condemned, but we were two unwitting, naive idiotic college grads who thought it would be cool to have all that space for only $600 a month. My roommate kept saying, "we have two rooms each!!" We had an attic, a back-yard, a "garage" (I think there was a body in there), a front porch, etc.
3. I didn't know what it meant to make only $1,000 a month after taxes. I didn't know how to make a budget or stick to a budget. For some reason at this point in my life, I did not listen to my parents. I was preparing to marry someone I should not have married, and they didn't know about. They didn't like where I was living - I was so happy to be on my own that I didn't care what they thought. And finally, I thought (wrongly) that I was now an adult who could do what I perceived were "adult" things (okay, you guys, not what you're thinking!): buy furniture, wear nice clothes, go out to eat, have whatever I wanted in my fridge, go on trips to visit friends, buy nice wedding gifts, buy music, books. In short, what I perceived I could do with a $16K salary was more realistically the kinds of things one might do on a $25-30K salary. I also had inherited an old car at that point, and although I didn't have car payments, I now had insurance to pay, fuel to buy, oil changes to make, general maintenance, etc.
4. After I got my car, I found that "glorious" invention: the "15% off anything you purchase if you open a credit card today" pitch at a couple of my favorite stores. You know that feeling (well, back in your pre-Fool days, perhaps): "I can get the same stuff I was planning to pay cash for, not pay anything for it today, and get it for 15% less?" The 18.9% finance charge meant nothing to me � and back then, I wasn't even necessarily thinking of paying the balance off completely. Rather, it sent me back to the racks to get even MORE stuff! Feeling like a queen, walking out of Banana Republic with two bags full of nice new clothes.
5. Note to parents of college students: without a car, I had no way to get to those stores, at least not very often.
6. Then I got married, which is a whole other thing in itself, but I know it contributed to my debt.
By that point though, it makes no difference to talk about how I continued to use credit cards. The fact is that I thought I could, and I thought everyone did, and I thought I could handle it, pay it off, get out of it, whenever I chose to.
That dangerous belief is the one thing that I think kept me in the cycle of (ab)using the cards. "I can get out of this when I choose to." I was talking in an earlier post about how people hurt themselves by believing something about themselves that just is not true. The discussion was about responsibility. To refresh, the idea was that if a person keeps saying, "I'm a responsible person," but keeps showing up late, paying bills a little late, forgetting to do things, etc., then that person is in for a rude awakening, and probably some depression and frustration, because the consequences of those behaviors are consequences that a person wouldn't expect, if they truly believed they were "responsible." "How could this happen to me? I'm a responsible person!"
It's the same with this situation. I believed I was in control of my debt, and that I could get out of it whenever I chose. How sickening now to think that there came a point where I had about eight accounts open at once, all with high, if not maxed, balances � even after I had my new job and was making $20K per year, I could not possibly have paid those balances off whenever I wanted. I was only 23 - 24 years old!
I hit bottom in late 2000, early 2001, and it still seems impossible to me that I was able to run up nearly $10,000 in credit card debt over the course of two years. I honestly had/have nothing to show for it.
Several things happened then that I don't need to repeat, that led me to the Fool. It has taken me a long time to understand what my needs are, how much of my income my needs require, how much wiggle room I have (without credit cards), how much I will need in retirement, etc. etc. I still struggle with it. But I no longer use credit cards at all. I am back to the mentality I had during college, when I was afraid of them, but now I'm afraid for the right reasons. It's a shame that I had to throw away so much time and money in returning to a way of life I could have, with a little discipline, kept all along.
But the point of this whole lengthy tirade is to get back to my original question: why so many young adults, between the ages of 18 - 28 seem to accumulate so much credit card debt so quickly, so easily.
My big brother (9 years older than I), who is in a deep hole right now (I won't go into details), was talking about it last night with me. He reads www.clarkhoward.com, and gets a lot of the same advice there that we get here at the Fool. (I still think the Fool is superior, but that's just one woman's opinion). He said something that struck me: "I know Dad budgeted all the time, but he never showed it to me."
There are always raging debates here and on the LBYM board about how to raise kids to be financially savvy.
Since my "wake-up call," I have believed that in order for a person to internalize the meaning of living on/within a budget, that person has to really understand the value of earning, and the way to do a cost/benefit analysis, even on a really small scale.
I don't care how many times my parents, either in trying to teach me a money lesson, or just because they didn't have the money for whatever I wanted, told me: "credit cards are bad," or "we don't have enough money for that," or "wait until you get your allowance," they did a million other things that reinforced an opposite belief in me. (My parents are awesome, by the way. They have done everything for me, they still help me through tough times, as evidenced by the ongoing car lease saga -- )
Things they did that I remember:
1. They used credit cards. Even though they told me cards were bad, I guess what I internalized was almost akin to sex or alcohol � the unspoken assumption "for kids" � those things are bad for kids, but not for adults. When you're an adult, you can. But just like with sex or alcohol, the reason they're for adults is because it takes discipline, responsibility and knowledge to handle that kind of privilege. Hmmm... I just realized this, but I was never taught how to be responsible with any of those things. I have had to learn the hard way with each.
2. They didn't want me to do without. My parents were both from poor families. My dad grew up on welfare, without a father. My mom did a little better, but still, her dad was a fireman and there were six kids. By the time I came around, my parents were in good financial shape, relatively. I remember going to the store clothes shopping. There was never a spoken limit at the beginning. They never mentioned the cost of things. They never said, "You can spend $50, and that's it." There was never even a limit, such as "you can get one dress." It was always, "let's just look around and see what we find." There were no dashes straight to the clearance racks. My dad took pride in the fact that if I found two beautiful dresses and they looked good and fit well, he could buy them for me. It was the same for groceries, toys, anything.
3. They kept money to themselves. Money was not something they wanted us to worry about. One of my parents' biggest fears was that I would start wanting a car so much in high school that I would get a job to buy one and stop doing well in school. That was a typical desire, and I imagine still is. You turn 15, you start thinking about wanting a car when you're 16, you get a job, grades maybe suffer a little, you buy a car. They had it wrong in my case, though. I didn't care about a car, but I wanted other things (everyone wants something). I held little jobs here and there, and I did well in school. But the point is that they didn't want us to even think about money. They didn't show us their business, because they didn't want us to worry. They wanted us to enjoy the fruits of their labor � great, loving parents, but a lousy way to raise financially savvy children.
4. Money was a reward, as were "things" I got money for getting "A"s in school. Shopping was an upper. A full fridge made mom very happy. We never saw the boring, tedious, sometimes frustrating side of money: the budgeting, budgeting, budgeting, what mom and dad gave up so that we could have. I never saw my ballet lessons in terms of their "cost," and I don't mean their financial cost, I mean what they meant someone else in my family had to live without. I loved my family fiercely, and I'm sure that if it had been explained to me that the cost of my ballet lessons was dad's vacation, or mom's new set of pots or a new dishwasher, or a computer for my brother � I would have learned better.
5. money was abstract It doesn't do any good to tell a kid who has never earned money that a bike costs $100. A bike doesn't cost $100. It costs twenty movies watched in the theater. It costs ten afternoons of mowing lawns.
But then, people say, "Make your kids have a job." That still doesn't explain why I or my brothers or my sister have had problems with managing money. We all had jobs. I think that jobs are great for teaching responsibility to other people. They teach you about accountability, having someone depend on you. My first job taught me why the lottery is stupid: I worked in a video/tobacco/lottery kiosk in our local grocery store. Every night we tabulated the proceeds of sold lottery tickets versus the amounts paid out. We always had a huge stack of $1.00 payouts, maybe two $5.00 payouts, one $10.00 payout if someone was lucky, and that was about it.
But of all the little part-time jobs I had, toward the end of high school, in college, and even the big summer college job I had didn't teach me how to manage money. All I knew was that it had to go in my savings account, and that it would in some mystical way "help" with college.
Like I said, college was a very soft experience. Our dorms were very nice. I didn't pay an electric bill, but I had plenty of electricity. I didn't pay a phone bill, nor an internet bill, nor a cable bill (isn't it ironic that the only time in my life I had cable was when I was in college? It was "included."). My parents, again, took care of things.
I think 19, 20, 21 years old is too late to begin learning about personal economics: either this CD or that one, not both. Those were the toughest choices, in terms of money, that I had to make.
I do not think my college offered personal economics classes/workshops, and even if they did, I do not think any of my friends would have attended.
Similarly, my law school is trying very hard to teach us about the financial situation we'll be facing upon graduation: loans in the tens of thousands, jobs starting at $40 � 50K if we're lucky, and life's curve-balls.
The response of my peers? "I'm not going to that meeting. Here's the answer to financial responsibility: graduate and get a job! If you make good money, you don't have to worry about it." Where does this sense of entitlement come from? Does everyone already understand what I have struggled to learn? I kind of don't think so, because I have many friends (more than I can count) who are between 20 and 30 who are still being bailed out by parents, who carry credit card balances that are out of control, who think that the only reason they can't pay their bills is that they are college/law school students, who continue to run up credit card debt and say, "it doesn't matter; after I graduate, I'll just pay them all off at once."
What is my generation going to do when it's time to retire?
So, my questions and thoughts for discussion:
1. What can parents do to teach children about managing money? I've already mentioned some by implication: set limits, and stick to them. "One or the other, not both." How can the lessons of money management be adapted to a child's college experience so that there is a transition from dependence to independence?
2. What can institutions of higher learning teach young adults? How can the sense of entitlement and the psychology of debt be brought to light? Why don't workshops or little "financial responsibility" meetings work? Why don't students attend, and if they do, does it really sink in (hard to hear warnings over a self-playing mantra: "just make money, you're responsible, you'll be fine.")
3. Why do people continue to believe that they are "in control" of their debt long after it should be apparent that they are not? Also, why do people start to think, "My Visa still has $100 left on it," instead of "I am nearly maxed out on my Visa." I know a lot of people who think of the difference between their balance and their credit limit as money they can use.
4. Why are college students who have no income allowed to have credit cards at all?
I think that's all for the moment. Sorry this is so long.
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Some of the posts about the new folks who are here, a question my bro asked me last night, and the post asking us how we got into credit card debt got me thinking about a topic that bothers me from time to time. (when I refer to debt throughout this post, I'm strictly referring to credit card debt, and not student loans, car loans, mortgages, etc.)