If you’re a college student, chances are you have a credit card. And if you do, chances are even greater that your use of the credit card has opened the door to some serious financial peril. In short, credit cards and college students simply don’t mix, according to a recent study of financial literacy on campus.
The study, “Financial Literacy and Credit Cards: A Multi Campus Survey,” conducted by researchers from five U.S. universities, was published this April, coinciding with Financial Literacy Month. Turns out the coincidence is a bit ironic, as the study found major problems with U.S. college students’ understanding of credit cards and credit card debt.
According to the study, 70 percent of students have credit cards. Of those students, five out of six are unaware of their credit cards’ interest rates; 75 percent don’t know what their late-payment fees are; and 70 percent don’t know what their over-balance fees are.
As a result, more than 90 percent of college students who have credit cards are carrying monthly credit card debt, which is a big-time mistake. Perhaps more shocking was that nearly all of the 725 students who participated in the 2009 survey were business majors.
The study also revealed several other troubling facts about credit card use on campus:
- Credit card use “has snowballed in the last decade” on campus — in 2004, the average student credit card debt was $946, by 2009 it was $4,100
- Nearly a third of college students with credit cards had more than one card
- Only 9.4 percent of students paid their credit card debt in full each month, a sharp drop from the 32 percent who paid their balance each month in 2003
- Only 14.6 percent of students claimed to know their interest rates
- Demographically, younger students used credit cards more than older students; students who had taken an ethics class were more aware of interest rates, and employed and married students tended to be more responsible users of credit cards
In the end, the study concluded that college students lack even basic knowledge of credit cards, which are probably used every day by many students to help pay for college and living expenses, as well as for stuff students don’t need or can’t afford. “This result may also explain part of our national problem with credit,” the study said. “If our college students do not understand credit costs, what can we expect from the larger portion of our society without a college education?”
“These results should serve as a wakeup call for both our college students and our college outreach efforts into the community to train people about the costs of credit. It is clear the status quo of financial literacy is a failure.”