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Study: College Kids Struggle with Their Credit Cards

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Thanks to the CARD Act, young adults have received numerous protections from questionable lending tactics in the last few years. Nonetheless, many still continue to open credit card accounts, and many are mismanaging them as well.

Today, despite those laws that were designed to prevent those under the age of 21 from obtaining a credit card they cannot afford, some 70 percent of undergraduate college students, and 96 percent of graduate students, carry at least one credit card in their own name, according to the study “Financial Literacy and Credit Cards: A Multi Campus Survey,” published in the International Journal of Business and Social Science. Of that group, about 36 percent have two credit cards or more, but just 9.4 percent of respondents say they pay the balances on those accounts off in full at the end of every month, a significant decline from similar surveys conducted prior to and during the recession.

In many cases, these young adults also have very little working knowledge of the details of their account, the report said. Only 14.6 percent said they knew the standard interest rate they pay for carrying a balance over from one month to the next. In addition, just 24.3 and 29.2 percent said they were aware of the cost for penalty fees added to their account for making a late payment and going over their credit limit, respectively. In all, fewer than 10 percent were aware of all three of those factors at the same time. And more troubling is that researchers noted that, because they had no way of verifying what the respondents’ actual credit card terms were, it’s likely that a good portion of those polled were overstating their knowledge. Due to privacy laws and other constraints, the poll could only be conducted by asking their knowledge of these costs as a yes or no question.

And while most of the students used their cards, about half at least said they only tapped the accounts in the event of an emergency, the report said. Another 36 percent said they use the card less than five times a month, while only 13 percent said they used them frequently. Another 1.1 percent use them more than once a day.

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Federal law requires that consumers under the age of 21 either have an adult co-signer when opening a credit card in their own name, or otherwise provide proof of income adequate to afford the account.

Image: Tulane Public Relations, via Flickr

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