Consumer Debt Levels: Teaching Money Management to Kids

Because college students do not comprehend the responsibilities of handling credit cards, they are leaving college with large amounts of indebtedness, in addition to their student loans. Laraye Brown of the Clarion Chronicle, states a "Sallie Mae survey of students applying for private or alternative loans showed eighty-four percent of students have credit cards" and "twenty-one percent have balances of $3000-7000."

Calculating Percentages

Unfortunately, credit cards are not issued with instructions on their wise use - because the banks are in the business of making money. Therefore, students must be proactive in learning how to manage debt. Students should avoid compulsive spending with credit cards in order to stay out of debt. One of the most important concepts to understand with credit cards is that compound interest accumulates according to the Rule of 72. The Rule of 72 is a mathematical concept which states that if consumers divide the number 72 by the interest rate they are receiving on your money, the quotient will tell them how many years it will take for the money to double.

Unfortunately, the banks also use this rule to determine the amount of unpaid interest on a credit card account. For example, if consumers are being charged ten percent interest on a credit card, the banks will add on interest according to the Rule of 72. The interest payments will double in 7.2 years. If consumers have a credit card balance of $2000, and are paying ten percent interest, the balance will increase to $4000 in 7.2 years.

Because of the way interest can accumulate on credit cards, students should be more responsible when using the credit cards to buy clothing. Many teens are influenced by what they see on television and in magazines. Danielle Jo Spiegler of Intermix says that "Teenagers come in and they'll spend $800 to $1000 and drop it all on credit card."

Impulsive Persons Handling Cash

Learning how to shop around for food and clothing will help teens to avoid over spending. Teens and students should learn how to look for bargains online without sacrificing quality. They also need to know where they can find these bargains. There are many bargain sites on the internet where teens and students can find brand name clothing at discount prices.

In conclusion, exercising restraint in using the credit cards and being aware of how the banks charge interest, will help teens and college students avoid debt. Students will also learn valuable lessons in carefully considering the best time to make a purchase.