College Students and Credit Cards: What Role do Parents Play?

Students learn bad financial behavior at home, researchers say

10/19/2012 | ConsumerAffairs | Credit Cards

 

By Mark Huffman

Mark Huffman has been a consumer news reporter for ConsumerAffairs since 2004. He covers real estate, gas prices and the economy and has reported extensively on negative-option sales. He was previously an Associated Press reporter and editor in Washington, D.C., a correspondent for Westwoood One Radio Networks and Marketwatch. 

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A few years ago college students found themselves saddled with mounting credit card debt, in addition to student loans. Credit card companies eagerly sponsored campus events, signing up students for credit cards, even though they had no source of income besides Mom and Dad.
The CARD Act, signed into law in 2009, went a long way to end those activities. Researchers at East Carolina University say parents should do more to help their college-bound children make sensible financial decisions.

The researchers analyzed data for 413 undergraduate students from seven different American universities, who took part in the College Student Financial Literacy Survey. Through an online survey, the authors examined credit card debt and number of credit cards owned.

Parental influence

In particular, the researchers honed in on students’ interactions with their parents when discussing finances as a family, their years of work experience, financial knowledge of credit cards, loans, insurance, and personal finance. They also asked how comfortable they were making only the minimum payment each month.
Overall, nearly two-thirds of students had a credit card, and nearly a third had more than one. Gender and class year were the top predictors of the number of credit cards students had, followed by parents who argued about finances.
Specifically, juniors and seniors were nearly four times more likely to report having two or more cards, and females were more than twice as likely as males to have two or more cards.

Arguing parents a bad sign

Students who reported that their parents argued about finances were also twice as likely to have more than two cards than those who reported having parents who did not argue about finances. In addition, those comfortable with minimum payments were also more likely to have more cards.
In terms of debt, those students who had two or more credit cards were nearly three times more likely to report having credit card debt over $500. Parental influence, and parental arguments about finances specifically, was also one of the top predictors of a student having a credit card debt over $500.
“It is clear that the influence of parents cannot be underplayed,” the authors concluded. “Researchers, educators and policymakers should work with, and include, parents in finding effective ways to increase the positive financial behaviors of college students, particularly those behaviors related to credit card use. We need to help students and parents learn financial skills and establish healthy financial attitudes at earlier ages to prevent poor financial habits from taking root.”

Some good news

A survey of college students by CreditDonkey, released last month, is more encouraging, finding that most college students have improved their credit card performance In fact, it found that 30 percent of college students polled said they did not have a single credit card.
A major problem with credit cards is that consumers often run up their balances, intending to pay them down in the future, but find they are never able to do so. As a result, they suddenly find themselves with balances of several thousand dollars and, at credit cards' high interest rates, it is all they can do to keep up with the interest payments.
The CreditDonkey survey suggests college students have yet to fall into that trap. When asked how much they pay on their credit card bill each month, a surprising 42 percent said they paid off the balance each month. Only 17 percent confessed to paying just the minimum each month.