New Meaning of College Credit

Sept. 7, 1999

Contact: Teressa Tignor Gilbreth
Information Specialist
(573) 882-9144
[email protected]

FOR EXPERT COMMENT: THE NEW MEANING OF COLLEGE CREDIT

Some say college students of today have more worries than their parents did, that the high rate of divorce and todayÃŒs culture force young adults to handle the pressures of adulthood much sooner. Making financial decisions about when and where to establish credit is one grown-up issue that faces todayÃŒs high school graduates even before they step foot on a college campus. And they may not be ready to make informed decisions, says one associate professor of family and consumer economics at the University of Missouri-Columbia.

Craig Israelsen teaches personal and family finance to more than 300 college students each year. The winner of numerous teaching awards, Israelsen delights when he sees another young adultÃŒs eyes light up as he learns for the first time how interest works and decides to begin investing in a mutual fund. In addition to his teaching, Israelsen studies mutual funds and is currently working on several articles including tax-efficiency of index funds, the mathematics and pragmatics of dollar-cost averaging and risk-adjusted performance comparisons of no-load vs. load funds.

In his studies of MU students, Israelsen found that students at MU reflect national trends in college studentsÌ credit card usage: a majority own credit cards, many own more than one and most carry a balance.

"Credit cards are no more the cause of college studentsÌ debt than guns are the cause of murderers killing people, but they can exacerbate a mindset that leads them into debt. Because they are so convenient to use, creating a mountain of debt is easier with credit cards than the old fashioned way Û because in the old days when you were out of money, you were really out of money. When students use a credit card, thereÌs a Fantasy Island myth or a funny money notion that this isn't real money and they won't really have to pay for it.

"The thought process is different for a younger student than an older adult. For one thing, the kind of debt they rack up is different," he said. Israelsen suspects that keeping up with the college social life plays a big part in college students' credit card use. "Our society has created an overall mentality that debt is how we do our business. We live in a fairly prosperous society, and it's hard for some students to look at what others have and accept that they don't have the same.

"What some of these students are doing, essentially, is pre-spending their future earnings. They've committed themselves to debt payments before they even get their salary."

He advises his students to ask themselves why they might need a credit card before they sign on the dotted line. There are some benefits of having a credit card like emergencies, establishing a good credit history and gaining card bonuses like frequent-flier miles, but they must be used wisely, he said.

He suggests for students who think they've gotten in over their heads in debt to turn to their families first for help. Then there are other resources like Consumer Credit Counseling Services in most cities.

Israelsen may be reached at (573) 882-2173