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Teens ask the darndest money questions

It's their senior year, and already these high-schoolers are planning for their golden years.

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.

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The students have their own agenda.

Ready for the (retirement) world
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 of deposit.

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: Everything's negotiable."

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 of debt."

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 your wages.

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 class.

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.


-- Posted: March 21, 2001




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