Teens ask the darndest money questions
It's their senior
year, and already these high-schoolers are planning for their golden
On a sunny Monday in West Palm Beach, Fla.,
22 students are listening to a visitor: Jean Brannan, outreach specialist
for Consumer Credit Counseling Service. She is here to talk about
budgeting, credit cards and student loans because many of the people
in this class will go away in a few months to college where they
will spend and borrow without parental scrutiny.
The students have their own agenda.
Ready for the (retirement)
These 17- and 18-year-olds want to retire comfortably, preferably
before the century's midpoint. They want
Brannan to talk about Individual Retirement Accounts and certificates
One student says he already has an IRA. He just
doesn't quite understand how it works.
"When can I take money out of it?" he wonders.
Another student asks what the difference is
between a traditional and a Roth IRA, and how to invest in a CD.
Another asks if it's
true that $2,000 invested in an IRA at 18 will be worth $2 million
at age 45.
Brannan, a grandmotherly sort who drives a
15-year-old car by choice (she could afford a new one, but she would
rather spend her money on other things), artfully answers and dodges
questions. She tells the young man that he can withdraw money from
his IRA in about 40 years, glides past the question about varieties
of IRAs, says the best way to invest is to do so when you can afford
to and observes that investments indeed can grow a lot when you
start out young. She doesn't say that it might be a tad much to
expect a thousandfold increase in 27 years.
Dude, we wanna invest
It's like the students have embraced Stuart as a role model. Stuart
was the red-haired wild man in the Ameritrade commercials who made
investing exciting and cool -- the way driving too fast and having
sex with foreigners was exciting and cool for baby boomers.
Using credit cards responsibly is about as
exciting and cool as compiling a perfect school-attendance record.
But after talking briefly about budgeting, Brannan gamely steers
the subject to plastic, with good reason: These high-schoolers already
receive credit card offers in the mail, and the solicitations will
intensify after they enroll in college.
When you're young, it's best to have one card,
Brannan starts out, and you can feel the warm room deflate a little.
These students want to stuff their wallets with MasterCards, Visas,
Amexes and store charge cards. Soon.
"It's not a status symbol to have a lot of
cards," Brannan insists. She then explains that lenders regard credit
limits as debt when you apply for a mortgage. The students, so intent
on saving for retirement, seem indifferent to the mention of mortgages,
so Brannan adds that having multiple credit cards makes it harder
to get more cards. That gets their attention.
Making money-smart seniors
The students belong to Kim Caracello's economics class at the Dreyfoos
School of the Arts in downtown West Palm Beach. It's a magnet school
that attracts some of Palm Beach County's smartest. Administrators
boast of the academy's high standardized-test scores and the 90-something
percentage of graduates who go to college or art school.
Caracello teaches history and economics, and
her classroom is decorated with student-made posters about the war
in Vietnam, the civil rights movement and the Federal Reserve. To
help teach her seniors the microeconomic subjects of budgeting,
borrowing and saving, she invites lecturers from Consumer Credit
Counseling Service, an agency best known for helping people get
out of credit trouble without declaring bankruptcy.
That's why Brannan is here today. She roams
the region, addressing various groups about the importance of living
a responsible financial life. She likes to talk to high-schoolers
because they seldom have serious money problems. Earlier today,
she had addressed troubled women in the county jail's work-release
program. "For many of them," Brannan says with a sigh, "the only
choice is bankruptcy."
Caracello's class is mostly attentive.
One girl lays her head on the desk but keeps
her eyes open (Brannan's pet peeve is students who sleep, and she
won't allow it); another writes a letter that she decorates with
hearts in the margins. Quite a few students ask sharp questions
about credit cards and student loans.
Financial reality bites!
"When do you begin to pay interest -- immediately or after you get
your bill?" one young woman asks.
Another asks which is better: MasterCard or
Visa. When Brannan mentions that the standard late charge is $29
and so is the standard over-the-limit fee, the students gasp and
one asks, "How can they charge over-limit fees?"
They charge over-limit fees because they can,
and Brannan says, "There's one thing about late and over-limit fees:
You can call and try to get the issuer to reduce
or eliminate a fee, Brannan says, adding, "Most credit card companies
will make an adjustment. If you're having trouble with the person
you're talking to, say, 'You've been very helpful. Let me speak
to your supervisor.'"
It is then that a student asks the question
of the day: "How do credit card companies make money?"
It's the question that Brannan has waited for,
because it allows her to tackle several misconceptions and gaps
in knowledge. Most of the students believe that Visa and MasterCard
issue cards to consumers, when in fact banks do. Brannan explains
that Visa and MasterCard are networks that the banks belong to,
and which take a cut of every credit-card purchase.
She says that card issuers make money not only
on annual fees and late and over-limit penalties, but on interest.
To underscore how lucrative the business can be, she says that when
you make a minimum payment on a revolving balance, three-quarters
of the payment is interest. "They're in business to make money,
and they're really good at that," she says.
The basic rule of credit card use, she warns,
is: "Spend it as if it were cash and don't build massive amounts
Speaking of massive amounts of debt, about
half the class says they plan to get student loans to pay for college.
Brannan says student loans are a good deal, but alerts the students
to the unhappy fact that they are one of the few obligations that
you absolutely can't walk out on. Even in bankruptcy, you have to
pay student loans, she says to the wide-eyed students, and if you
don't, the feds can intercept your income tax refund or garnish
Then she takes questions.
Someone asks where banks get the money they
pay as interest on CDs, and Brannan points out that the money comes
from interest paid on loans.
Another asks whether those companies that say
they fix your bad credit record can really do what they say, and
Brannan says no, the only way to clean up your credit record is
to repay debts on time for a few years.
That wraps up Brannan's hour with the economics
Afterward, in the school's parking lot, she
says it went well. The students paid attention and no one slept,
which is more than you can say for students at some other schools.
She is under no illusion that an hour-long
lecture about budgeting, investing, credit cards and student loans
will change the life of every student in the class. She hopes her
message is reinforced by others in the students' lives -- dorm managers,
counselors, parents. If they follow good advice, she figures, they
really will have golden years.