Tuesday, December 16, 2008

(College Kids) Living Beyond Their Means

In the 21st century impatience, lack of discipline and flamboyant attitudes facilitate poor financial decision-making. Why is it so hard to say "No. I can't afford that" and just let it be. Every time I turn on the radio or television I hear about debt consolidation this and debt elimination that. These ads are usually directed towards my demographic, the 20- something year old, specifically the females. How can you be that young and have such debt? I am not referring to student or home loans since they are considered investments (or at least were considered so once upon a time). Most debt comes from living beyond ones means, buying what one can't really afford with credit cards.

My first encounter with credit cards occurred during my freshman year at my alma mater, The University of North Carolina at Chapel Hill. During the first week of the semester, if you played your cards right, you could survive and spend very little. If your tummy rumbled there was free pizza, subs, drinks and any other junk food your heart desired. (Who'd want to eat junk food you ask? A recently liberated adolescent with a license to FINALLY make their own decisions about every aspect of their life, that's who!) Need more clothes? If you knew how to work The Pitt and The Quad (the two spaces at UNC where everyone hangs out between classes) you could score a few t-shirts, caps and visors to complete your wardrobe. All of this stuff was free, or was it really? Who was giving away this stuff? You guessed it....credit card companies. "Sign up for this card and get "x" free." "Apply today to lock in this interest rate and get a free lunch." Blah-blah-blah! Thank God I knew better.

My mother taught my sister and me about personal finance from an early age.I learned that poor financial and credit management would limit what apartments you could rent and increase long-term costs when financing a home, furniture or a car. If you are poor AND have bad credit you will pay much more for the items you need (and want) because extending credit to you is riskier, so interest rates are higher and down payment requirements are larger than they would be if  you were a safe credit risk. This was a lot for a pre-teen to absorp, but I'm glad I did.

I wasn't ready for the responsibility (or temptation) that a credit card offered and I came to terms with it. Sadly, can't accept their reality. Quite a few friends of mine fell into the credit trap, finding themselves in a new place with a desire to reinvent themselves with a new wardrobe, new gadgets and maybe a new car. These instant pleasures caused long term pain as the thrill of having something new wore off while the compounding interest from the cards kept them slaves to making credit card payments. How quickly they signed their lives away for depreciable assets. How quickly they regretted their decisions. I can only hope they learn from their experiences.

Bottom line: Don't Buy Stuff (SNL clip)


Watch Maxed Out, specifically from 34:00 to 41:46, to see how universities and credit card companies used to collaborate to draw students to plastic.