Parents of high school students get a chill when credit card applications first begin appearing in the mail addressed to their child. They worry whether their son or daughter is ready for the responsibility.
Judging from the confusion that Bennie Waller sees among the teens who come to his personal finance course, parents may have reason to be concerned.
"Until you are the one paying the bills, it’s difficult to understand the value of money," says Professor Waller, director of the Longwood University Center for Financial Responsibility. "Young people today seem to have a lot of misconceptions about money that we need to change to help them get started off on the right personal and professional foot."
In Virginia, every high school student is required to take a one-credit course in economics and personal finance to graduate. Longwood University is working with more than 20 schools across the state in delivering a dual-credit course (FINA250), allowing students to satisfy their high school requirement while also getting transferable college credit.
"The students we see are motivated students, many from honors programs," says Dr. Waller. "And yet still their eyes are opened by what they learn about credit, loans and economic and financial issues."
Longwood is able to work with high schools to offer the dual-enrollment Personal Finance 250 course across the Commonwealth. For more information go to http://cfr.longwood.edu.
The 5 biggest lessons learned by students in Personal Finance 250, according to Professor Waller
The impact of student debt lasts far longer than expected.
While most student loan plans are meant to be repaid in ten years, recent research says the average student loan debt lasts for 21 years or more. This is analogous to a mortgage payment.
"Student loans are often seen as an easy means to an end, says Professor Waller. "But dragging high student loan debt for two decades can mean putting off buying a home or other big purchases. That is something many kids don’t think about when deciding how much to borrow for college."
Paying your bills on time isn’t enough to get a good credit score.
While not paying charges for cell phone or electric bills on time can hurt a credit score, staying current won’t necessarily help when it comes time for a loan to buy a car or a home.
"Even a very high credit score is not valuable without a good credit history," says Professor Waller. "It requires managing the right kind of debt wisely."
Making minimum payments on credit cards can really cost you.
Credit cards are convenient and even a necessity in an increasingly cash-free, online economy. However, until you do the math, credit card charges can hide the true costs of purchases.
"When we look at a $10,000 credit card balance with a 21% interest rate, we see it will take more than 50 years to pay off when making only minimum payments," says Professor Waller. "And statistics show that as many as 90% of people only make the minimum payment. That one really opens some eyes."
A high credit score is about more than a good loan rate.
On TV, many companies today are selling the importance of monitoring credit scores. But what many young people don’t realize is how important a credit rating is to so many things, whether it is looking to get a loan or purchase insurance.
"For example, most insurance companies use credit scores to help determine rates," says Professor Waller. "The belief is that if you are taking bad risks in your finances then you are more likely to be risky behind the wheel."
Monthly payments are only part of the picture when getting a loan.
The moment a car is titled, the average automobile loses as much as 20% of its value. But that hasn’t stopped more and more people from financing auto loans over longer periods of time. After all, the monthly payment for a $25,000 car financed over five years is about the same as a $16,000 car paid for over three years.
"Too many people, even adults, think that if they can afford a monthly payment they got a good deal on the loan," says Professor Waller. "What they don’t consider is the cost of thousands of dollars more in interest they will pay over the additional years."