SHOULD AMERICAN STUDENTS USE CREDIT CARDS

Should American Students use Credit Cards

Should American Students use Credit Cards

Introduction

Several organizations have recognized the need for and are pushing an agenda of financial literacy for the country's youth. They include the National Endowment for Financial Education (NEFE), the Jump$tart Coalition for Personal Finance, the National Council for Economic Education (NCEE), and the Financial Literacy and Education Commission (FLEC). Additionally, the Policies Commission for Business and Economic Education (PCBEE) has been actively engaged in establishing the role of business education in financial education. Descriptions of these organizations, along with their Web site addresses, are included in the References and Further Readings section of this chapter.

Discussion

NEFE says the financial literacy problem is pervasive, citing a report that nationwide, high school seniors from all socioeconomic groups scored an average of just over 50% on general financial knowledge, a below failing grade (National Endowment for Financial Education [NEFE], 2002). This lack of financial competence can have devastating effects later in life, as illustrated by the rising level of personal debt of individuals and the increasing rate of bankruptcy filings. NEFE pushes its agenda as a means to address the gap between haves and have-nots. They argue that low-income and otherwise disadvantaged students have an even greater need to manage their own finances than their better-off counterparts.

Additionally, more than 75% of college undergraduates have credit cards, with most of them holding multiple cards and carrying average debt balances of over $2,700. Between 1990 and 1999, there was over a 50% increase in the annual bankruptcy filings among adults aged 25 and younger. This problem is exacerbated by the escalating debt students take on to finance their college education. In fact, 42% of undergraduate students enrolled in the 2003-04 academic year had accumulated student loan debt and had borrowed an average of $11,600 during the course of their studies (Berkner, Wei, & Carroll, 2006).

Furthermore, many students are taking on private debt to supplement what they are able to borrow under federally funded programs and do not always understand the terms and conditions of these loans. As a result, they are unpleasantly surprised by rising interest rates that are not capped and loans that have no provisions for forgiveness of late payments. The 2007 financial aid office scandal could perhaps have been mitigated to a certain extent if these borrowers had been more adept at comparing loan options and not relied solely on the advice given to them by their college financial aid or outside loan officers. Armed with knowledge of banking principles, students can better ensure that college lending officers structure the best possible loan packages.

Economics education is also part of the standards march. In 1998, NCEE, in connection with its “Campaign for Economic Literacy,” enumerated 20 different economics standards that students should master in economics by the time they graduate from high school. These standards, which can be adapted for suitability at numerous grade levels, include such concepts as the scarcity of resources, how these resources are allocated, how market ...