Dave Ramsey on the myth of credit cards as a 'necessity'
I recently spoke at a financial literacy event for college students and listened as the speakers -- respected financial experts -- discussed the necessity of credit and how important it is for young people to build up their FICO scores.
I don't agree with this. I think it's dangerously bad advice, and it actually terrifies me that it's the conventional wisdom propagated in what passes for unbiased financial literacy training for young people.
The potential negative consequences of using a credit card while in college -- overspending, running up debt and finance charges, collection calls, lawsuits, a bad credit score -- are so much more bad than the potential positive outcomes are good that I would argue that most college students should not have credit cards. Telling kids to get credit cards in college to build credit is like telling people to jump in front of steamrollers to pick up pennies.
A 20-year-old called in on Dave Ramsey's show the other night and asked about this, and Dave's response was classic Dave. Please: Watch the clip and send it to your kid. And if you have friend with kids in college facing these same issues, send it to them too.
I don't agree with this. I think it's dangerously bad advice, and it actually terrifies me that it's the conventional wisdom propagated in what passes for unbiased financial literacy training for young people.
The potential negative consequences of using a credit card while in college -- overspending, running up debt and finance charges, collection calls, lawsuits, a bad credit score -- are so much more bad than the potential positive outcomes are good that I would argue that most college students should not have credit cards. Telling kids to get credit cards in college to build credit is like telling people to jump in front of steamrollers to pick up pennies.
A 20-year-old called in on Dave Ramsey's show the other night and asked about this, and Dave's response was classic Dave. Please: Watch the clip and send it to your kid. And if you have friend with kids in college facing these same issues, send it to them too.
Reader Comments (Page 1 of 1)
9-29-2009 @ 7:48PM
Dick said...
My oldest daughter opened a savings account at the credit union when she was six. She put money in it ever so often and the tellers really enjoyed her visits.
In High school she used HER savings for a school trip to Europe. She was so proud...
She is in her 2nd year college and it is in another city about an hour drive away. She needed a "credit card" to buy gas at the pumps and etc. We got a Visa check card with no credit line from our credit union. She gets her allowance and her earnings at school directly deposited in the savings side of the account and she transfers money online to the checking side when she wants to buy food and gas.
At first she kept running out of money, but then she got distracted by mid-terms last year and the saving side started to grow. As the year progressed she spent less, it grew more, she spent less...
As the year went by she changed her understanding of money and the idea of building savings BEFORE she knew what she wanted to buy become very interesting to her.
Last summer she used HER savings on a 2nd trip to Europe with friends. They borrowed, they can't afford to go again this summer, or next...
She can.
This has not been lost on her. This summer she may get a summer-hire job and she now believes she will save enough while in college and grad school to buy a house upon graduation... not the normal sad financial story for someone in college these days...
(Oh yeah, she studied her math all through High School and the college "wanted her" so they pay most the cost, also not typical)
I think getting that savings account and all those two and three dollar trips to the CU, so many years ago and recently the check-card was probably the best thing a father could do for a daughter.
(this type of card is only available from Credit Unions, banks will not issue them, and we all know why, they are the modern equivalent of the "the pusher-man").
So the writer is right, kids in college do not need credit-cards.
They need to study in High School, join a Credit-Union and get a check card and a job on campus. They will learn very interesting things themselves by doing this, because after all they are smart, they are in college.
(Brace yourself, it is terribly scary as a parent when they announce they are going to Europe "with friends", aughhhh)
Credit is for the rank-and-file so they can get trapped early, live pay check to pay check as servants of their rich masters for their long and miserable lives.
Of course, if their father got them a savings account, a check-card... who knows, they are smart too.
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10-02-2009 @ 11:51AM
Jason Henrichs said...
The idea that the "responsible" thing to do is use a credit card to build credit is one of many myths propagated by the industry. Dave is spot on that most of us buy into the idea of what "normal" is, even when it is completely irrational or even bad.
Most of our founding team at PerkStreet Financial (http://www.perkstreet.com) has experience in the credit industry and we were astounded by the irrational behaviors we saw, especially in an effort to get those ever elusive rewards. That was a big driver for us to create PerkStreet where we can give a high level of rewards for spending responsibly on a debit card (e.g. using the money you have not the money you think you will have in the future).
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