Our eldest daughter recently graduated from college (1 down - 3
to go). She headed West to take an internship that will assist her in
obtaining some certifications that she needs. During her college years
our mailbox was filled with Student Loan companies making sure that she
knew that they were there for her - to lend her what she needed to
complete her degree. Now that she has her degree - our mailbox is full
of offers from credit card companies offering her the credit that "she
needs" to get her life in full gear.
I have been shredding the
offers as quick as they come into the house. And I have shared with her
the trap that these companies are setting for her and her
contemporaries. Last week instead of shredding the offers - I let them
accumulate in a pile on my desk. We opened them and the first few
sentences of each letter was quite eye-opening.
"You worked hard to achieve your degree and that hard work earned you our respect... ""Congratulations on achieving your college degree. As you begin your professional life you may need to rely on credit to get you started... ""Great job. Let us reward you with a great opportunity to assist you to build your credit rating... "
Here
is the normal way that this ends up for our young adults. As the offers
come in the recent graduate accepts a few of them - feeling great that
their hard work has been recognized and with the noble objective to have
the cards in case of an emergency. The card companies may tout credit
limits in the $1500 to $2000 range - but the reality is that once the
applications are submitted - unless the graduate has already achieved
excellent earnings - most times they will be given a smaller limit - in
the $500 range.
Once they have the cards the temptation to use
them becomes almost impossible to overcome. Perhaps it's a piece of
clothing, or a night out with friends, or even the purchase of a gift
for a loved one. The intent - as we all know - is always the same. "I
will use the card to purchase this... and I will pay the balance off
when the bill comes in". Then when the bill comes in and the minimum
payment is only $25 - most will pay the minimum because they have other
cash flow needs that seem more important at that time. And this cycle
repeats itself month after month.
The credit companies will start
to offer increases in credit limits as time moves forward. As they see
payments being made on time - that little limit of $500 - moves to $750 -
then to $1000 - then to $1500. Move the clock ahead 5 years and these
young adults can find themselves in $20,000 plus of credit card debt -
paying minimum payments of $500 per month - and in reality making no
dent in the principal balances. It is a cycle of financial paralysis.
My
suggestion to you is that you share this with any young adults in your
circles. Make sure they know what is at stake and why these companies
are trying their best to get them into a revolving credit nightmare.
Explain to these young adults the concept of "delayed gratification" -
instead of what the credit companies are offering - "instant
gratification".
Credit is important - no argument there. But the
proper utilization of credit and understanding the pitfalls is equally
(if not more) important. Spread the word.
Now I invite you to visit my website and additional resources for Safe Investing Services:
Comments
Post a Comment