Top 6 Signals That a College Student is Abusing Credit

Last Updated Jan 8, 2011 4:45 PM EST

Happiness and academic success in college are closely linked to good personal finance skills, and managing credit-card debt is probably the most important of those skills at that age.

Three-quarters of college students have at least one credit card and nearly half have four or more, according to a study by the Take Charge America Institute. The study pre-dates recent credit card reforms, which may have brought those numbers down a bit. In any event, the typical graduate has about $3,000 on their plastic and may already be on the way to a lifetime of brutal interest payments, especially if they have student loans to boot.

It's critically important for students to get their debts under control before they graduate. I've interviewed folks in their 40s and 50s who graduated from college with large debts that they are still paying off. To a person, they express regret and describe their embarrassment.

I'll share some of their stories in future posts. But for now I want to alert parents to some of the warning signs that their college-aged children may be engaging in risky credit-card behavior.

Take Charge America Institute looked at six areas of credit-card abuse and found that in every case the worst abusers among the college set were seniors. That's pretty depressing. Just as the kids are about to be set loose on the world they are engaging in the most destructive credit practices of their life.

You can see this in the chart below, which is based on data in the study and shows the percentage of college students, by year, that engage in certain risky behaviors.

This underscores the need for some kind of formal financial education in our high schools and universities. It also serves as a warning to parents who may not know what their college-aged offspring are up to.

According to the study, students most likely to engage in risky credit-card practices:
  • Have other loans Students already in hock through student loans or other borrowing are more likely to engage in the risky behaviors shown above.
  • Work Students who have wage income have better access to credit, and they use it - but not well. They are more likely to engage in the risky behaviors shown above.
  • Live off campus Students who live off campus tend to be more independent and engage in the risky behaviors shown above.
  • Are first-generation collegians Being the first in your family to attend a university is closely associated with having credit card debts, being late in payments, not paying balances in full, and maxing out the limit.
  • Pay their own way Students who are financially independent are more likely to have three or more credit cards, have credit card debts, make late payments, and not pay the balance in full.
  • Are credit-card newbies The earlier a student gets their first credit card, the less frequently they will use it but the more likely they are to have credit card debts. Students who get their first credit cards in their first year in college are more likely to be late payers and carry a balance.
If any of these situations describe your kids, they may be digging a deep hole. It's time to find out.
Photo courtesy Flickr user carmichaellibrary
More on MoneyWatch:
· Top 6 Ways Money Skills Give College Students an Edge
· The Top Reason Kids Don't Learn Money at School
· Teaching Kids About Money, What We're Up Against
· Financial Education Takes a U-Turn
· Taking Financial Education to the Next Level
· Financial Education: Where We're Headed
  • Dan Kadlec

    Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.

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