Student Affairs

Credit Crunch: Students should be educated before charging

University Park, Pa. — Many college students own a credit card, and most manage their debt responsibly. But the small percentage of college students who find themselves accumulating debt on a credit card are in for some troubling times, said Mary Beth Pinto, Penn State professor of marketing and research associate of the Center for Credit & Consumer Research (CCCR) at Penn State Erie, The Behrend College.

"A lot of students have credit cards," said Pinto, former director of CCCR. "Unfortunately, they don't all pay off the debt at the end of the month."

Pinto explained there are two types of credit card users — convenience users, who pay off their bill at the end of each month, and installment users, who view their credit card as loans on demand.

"A lot of students do pay it off," Pinto said. "A major pitfall is for the students that don't pay it off. As we know, if you don't pay it off, the interest accrues and they get themselves into a huge problem. It's a small percentage. The financially at-risk students are the ones that have over $1,000 in debt on their credit card, and it's a small percentage. But the ones that have it are in big trouble."

Credit card debt can lead to other problems, such as defaulting on student loans and even dropping out of school. "The most major [financial] pitfall students can run into is putting too much on their credit card that they can't pay off at the end of the month," she said.

Easy access to credit for college students is the most common culprit in amassing credit card debt. Pinto said that research with her colleagues at Penn State Behrend has found that most students get credit cards through direct mail offers. Additionally, students can find easy access to credit at retail stores with the promise of savings on their purchases for opening an account.

"In general, access is a problem, because they can get credit anywhere," she said. "You just have to have a source of income. [Credit card providers] don't care if you have a job. They know college students are going to have money. They look upon them as being a good future customer. They can be pretty lax with college students as far as the restrictions that are put on them. They might not give students a high limit, but then if you do pretty well with that, they'll keep adding to it."

Pinto noted that getting a credit card during the college years is important as a means of establishing credit history and for use in case of emergencies. In fact, graduates can have difficulty getting cards after college if they don't have a high-paying job.

Sound money management is essential, however, and she has found that those students who tend to pay off their card balance each month are those who are solely responsible for their debt. Those who believe their parents will bail them out tend to be more likely to spend carelessly.

Parents, though, play an important role in developing responsible money management practices in students.

"Hopefully, the parent is an educator," Pinto said. "All of [our] research has pointed to the parents as being the primary socialization agent, meaning how they learn to be a consumer in the marketplace. [Education] comes from one of four sources -- parents, peers, schools or media. Where students get the most information about credit is from their parents."

Parents can be responsible for "pre-involvement" or "post-involvement." With pre-involvement, parents help students learn about wise money management and help them select an appropriate card. With post-involvement, parents are usually bailing out the student.

"We would encourage pre-involvement, not post-involvement," she said. "If you think your parents are going to bail you out, you are going to spend."

As one alternative to credit cards, the rise of debit cards has provided a beneficial convenience, Pinto said. She found that 96 percent of Penn State students owned a debit card, and that while it offers the cash-free convenience of a credit card, it also keeps students from spending money they don't have.

"I think that's very positive because you can zero that out," Pinto said. "You can only spend what you have and it gives you that convenience."

Still, children need to be educated early in life about money management and the dangers of credit card debt. Toys and games can teach young children poor money management, Pinto said, citing some toys for preschool-age children that have replaced plastic money with a plastic charge card, as well as a children's board game, Mall Madness, which has as its goal spending the most money on a credit card and getting to the parking lot first.

"These messages come to these kids when they are very young," Pinto said.

At Penn State, the Division of Student Affairs, Office of Student Aid and the Alumni Association have collaborated on an agreement with the National Endowment for Financial Education for an online program on credit card management, budgeting and financial planning. The program is online at Student Aid also provides a list of resources on credit card management at

Last Updated March 19, 2009