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Inside Iowa State
Mar. 06, 1998

Curing students' credit blues

by Michelle Johnson

A recent survey of more than 650 Iowa State students revealed that the average student owns three credit cards, has more than $1,000 in credit card debt and owes more than $13,000 in student and personal loans.

And they aren't alone. According to family economist Tahira Hira, college students across the nation face the same problem.

So who is to blame? There are several culprits, said Hira, professor of human development and family studies. The credit industry flings offers of pre-approved credit cards at kids as young as 16. Financial institutions pepper college campuses with ATM machines, and offer loans with little explanation about how to pay the money back and the consequences of not doing so.

Society's tendency to define success in terms of material goods also pressures students into overextending themselves.

But the most powerful influence on students' financial behavior is closer to home, Hira said. Sixty-six percent of those surveyed said their fathers were most influential in shaping their financial behavior; 64 percent named mothers,too.

Apparently, this home schooling in the art of handling money hasn't worked out so well. Forty-eight percent of the students indicated that they were "dissatisfied" with their current financial situations, 43 percent said they didn't think they could cover emergency costs and 35 percent weren't happy with their money management skills.

According to Hira, everyone has two sides to his or her spending behavior -- the "planner" side and the "doer" side. The planner spends rationally. The doer doesn't.

"We each have the choice to either strengthen the planner within us, or turn the doer side loose," Hira said. "The family environment in which we are raised has a strong influence on that choice."

Parents of planners taught their children a sense of financial responsibility -- and specific tasks such as balancing a check-book and reading a credit card statement.

While doers were introduced to the same financial tools as planners, they never were educated on how to use them. For example, one student claimed she wasn't in debt because she always paid "at least the minimum amount due" on her credit cards.

Only 37 percent of the students inter-viewed described themselves as planners. But student responses to some questions about their financial behavior have Hira believing even that may be an exaggeration.

One student commented that "most college students are obsessed with material possessions and living 'high on the hog.'"

Fifty-six percent of the students surveyed admitted to buying things they don't need, 33 percent said they buy without a plan, and 44 percent use shopping to celebrate. One student said "shopping fills an emptiness in my soul."

When students use credit cards or student loans to make purchases, most don't view it as spending money, she said.

It's a different story when payback time comes. Fifty-eight percent of the students expressed remorse about the size of their student loans. Fifty-five percent worried about their ability to make payments.

Hira warns that it is the 45 percent who expressed no concern about their debt that are most worrisome. While some may not be experiencing financial trouble, most don't have a clue about the extent of their debt, she said.

Many students are fooling themselves if they think the first job will take care of everything. In an exit study of graduating seniors, Hira found most overestimate their first income and underestimate their total debt. She estimates that students will lose 8 to 10 percent of their annual income to student loan costs alone.

Are we fighting a losing battle with these students? Not according to Hira.

"I have seen students recover from the most desperate of financial situations," she said. "It's a matter of learning new information and behaviors. Be patient. We didn't get this way overnight."

Iowa State has two courses to help students understand the basics of money management and planning, and a financial counseling clinic founded by Hira 10 years ago offers one-on- one services and group seminars. Iowa State also is among the few places where students can major in financial counseling.

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