Credit Karma calls them “Credit Fumbles.” In fact they liked the term so much they trademarked it. They define it as “phenomenon where young adults, new to credit and many without financial education, make largely avoidable financial mistakes.” They hired a survey company find out just how prevalent Credit Fumbles are. They discovered that of those they surveyed, all aged 31-44 years old, more than two-thirds of them had experienced at least one Credit fumble before they were 30.
The credit fumbles were either overspending on credit cards, missing payments, having an account turned over to collection, or completely defaulting on a loan.
A fumble in football can mean something as serious as a turnover that results in a touchdown for the other team or as insignificant as the loss of a couple of yards. There were lots of turnovers for touchdowns, or at least big yardage gains by the other team. It found that three of four who fumbled their credit had a negative impact on “their quality of life.” The large majority, 69 percent, didn’t know what or understand what a credit score was when they got their first credit card. The result of these miscues was that 61 percent said a credit card company turned them down, 10 percent had an employer refuse to hire them because of bad credit, and 26 percent had to move back home with parents to try to recover their financial health. The study didn’t ask how many were turned down by landlords to rent an apartment, but you can imagine how that went.
How did all this come about? Many “experts” blame the lack of financial education young people receive. Most people receive no financial education in high school and then they are turned loose on the world, or the world is turned loose on them. And they are babes in the woods. But I never received any financial education in high school decades ago, so that is nothing new.
One thing that went on until 2010 was credit card companies swarming on college campuses like piranhas gobbling up the credit of 18-year-olds. “Can you breathe? Good. Got a pen? Sign here.” And as a reward for signing up for a credit card, the credit card companies gave them free t-shirts, gift cards, and magazine subscriptions. Even though the Federal Reserve sort of stopped that practice in 2010, it hasn’t helped those who went to college before the law went into effect, and that would include almost all of the 31-44 year olds who were surveyed for Credit Karma.
Under the new rules credit card companies have to stay at least 1,000 feet away from college campuses, must establish that an applicant can most likely pay the credit card bill, and can’t use the “breathe and sign your name” system for anyone under 21. They have to get a co-signer to get a card. They also can’t give away “tangible items,” such as t-shirts and such. What they can give away are discounts, reward points, and promotional credit terms, plus gift certificates to restaurants. The dirty secret here is that universities made big bucks from the credit card companies for allowing them to set up tables on campus. The colleges still do make big bucks, they just game the system a little.
Why would credit card companies extend credit to naïve 18-year-olds? They figured mom and dad would bail their kids out. And they did in many cases, but not in all of them, hence the 26 percent moving back home with parents.
Of course, then there are the student loans. It’s a broken record, but the Federal Reserve reported that 43.3 percent of young families, head of household younger than 40, had education-related debt. And that debt has risen steadily to $33,300 in 2016 from $30,700 in 2013. Some 72 percent of college grads carry some debt. Then there are those who have student loan debt but no diploma, those who had to drop out of college. They are in even more serious financial trouble because their incomes tend to be less than those of college grads.
Even grads aren’t doing as well, though. The Great Recession had a huge impact on wages and wages have not recovered. The Federal Reserve reports that wages have been all but flat since 2000.
It wasn’t that long ago when this situation was rare and individualized. As late as the mid-1980s, for example, in order to get a credit card, someone had to have a job and prove he or she could pay the bill. And college expenses have risen astronomically since the 1980s.
Collegeboard.org reports that annual tuition and fees at a public, four-year college went from $3190 in 1987-88 to $9970 in 2017-18. That far outpaces the rate of inflation which would mean that that same $3190 in 1987 would now be $7007.92 today, an increase of 120 percent. But college tuition and fees rose 213 percent. That doesn’t include housing and food, either.
The credit issues will remain a problem for the foreseeable future. Even with low unemployment, wages have remained flat and the “Credit Fumbles” brought on by a lack critical of thinking ability still haunt people. Of course, financial education would help, but younger people are still babes in the woods.
By Robert L. Cain
