Credit cards – the ‘Commodity of Fun’ – can cause major headaches, expert warns

Armed with a PowerPoint roadmap of vintage advertisements, the author of Credit Card Nation took students on an evolutionary journey from a culture of “save and invest” to today’s “spend and debt” society.

“We are so much more in debt than any previous generation,” said Dr. Robert D. Manning, research professor and director of the Center for Consumer Financial Services at the Rochester Institute of Technology in New York. “There is the feeling that we don’t need savings if we have a line of credit.”

The average American family has a monthly debt of $15,000, Manning told students during his presentation arranged by Prof. Michael A. Olivas. And the picture is even bleaker for college students who are “bombarded with credit card offers before the first day of classes.”

Research found that 84 percent of students have a credit card; by their senior year, the average student carries a monthly debt of more than $4,000. Many try to postpone payment, and avoid telling their parents, by using student loan money or transferring balances to new accounts claiming “zero percent interest.”

Manning’s advice: “read the fine print.” These “second tier” sources, the Gold, Platinum and brand and no-name cards that flood the Internet and student mailboxes, are driven by hidden fees.

America’s addiction to the credit card didn’t really take hold until the early 1980s after banking deregulation made them a profitable enterprise, Manning said. Prior to that, credit cards were a “loss leader” since most people paid their monthly bill on time and, in those pre-tech years, processing and accounting were costly, labor-intensive procedures.

Manning traced America’s changing spending habits through a series of ads starting with those invoking the spirit of Ben Franklin (“A penny saved…”) to the popularity of the board game Monopoly (invest, plan for the future and win by gaining a monopoly and all the money) to war bonds and stamps (patriotism through saving). “Imagine the joy of sitting under the Christmas tree and opening a Savings Bond!” Manning joked.

He contrasted those with ads beginning in the ‘80s: the Mall Madness board game (where the objective was to spend money buying everything on your shopping list), the Barbie cash register complete with American Express card (recommended for potential debtors aged 3 years and up), the DisneyWorld Visa (“every parent’s nightmare”). One card called itself “The Commodity of Fun” while another urged potential customers to “Apply Now—Make a Statement.”

The consequences of defaulting on these and other “statements” can be serious and long-lasting, said the nationally recognized expert on credit cards and consumer debt.

Potential outcomes of poor credit performance include higher interest rates on all debt, difficulty in qualifying for a loan, and a lower standing in the job market, said Manning, who developed some of his research at the Law Center while working with Olivas in 2001.

And given today’s tough economy, consider this: Manning said employers consider credit scores more important than a GPA in evaluating prospective hires.

“Why would an employer take a risk?” Manning asked rhetorically about job candidates with bad credit. A poor credit history might indicate immaturity, unreliability, impulsiveness, poor decision-making and a host of other problematic behavioral traits.

Students are targeted, and the most vulnerable, because they lack financial experience, Manning said. As students travel their roads to career success, Manning admonished them to beware one signpost during the journey. “The learning curve always goes to the bank,” he said.