Last week, President Obama signed into law a bill which places limitations on credit card companies in the hopes that consumersí financial woes will be at least somewhat mollified. A specific section of the bill prevents financial institutions from extending credit cards to those under 21 without verifying their ability to pay or having a parent or guardian co-sign.† After two years of accidentally overdrafting, paying massive interest rates, yelling at the bank teller on the phone and being deemed by my father as ìcompletely irresponsible,” I can honestly say that this is not even close to being a bad idea.
I got my first credit card when I moved to Wooster and started at a new bank. The idea was to use the credit card ìsparingly,” my father said, then promptly drove away and left me to my own devices. Bad idea. It would seem that a five-square-inch piece of plastic was the key to everything I couldnít get at home, where my financial activities were carefully monitored by my parents. The whole leave-for-college, live-on-your-own, buy-whatever-you-want deal was getting to my head. Soon, no less than five online shopping websites had my information stored. With a simple click ó that was it ó I could expect a ìgift” in my mailbox in 3-5 business days. I shopped when I was stressed during finals, when I was procrastinating writing a paper or to unwind after a hard cross-country workout. It went beyond the Internet ó going out to dinner, buying random stuff at Drug Mart, you get the idea ó I didnít see actual cash for months. Even though I was aware I was spending money, it was sort of that vague, hazy feeling which I couldnít really identify.
Before everyone freaks out and says this was my fault ó which it was ó I just want to reassert how easy it is to spend money when you donít actually see it. My generation has been at the crux of the cash-to-card movement, which is why I feel Iím not alone in my mistakes.
Then I hit a roadblock ó my first bill. No problem, I thought, digging through my drawer until I found the checkbook that had come with my credit card. I wrote my first check, dropped it in the mailbox and felt extremely financially independent.
Until the check bounced. Apparently, my father explained on the phone (undoubtedly through clenched teeth), the money I spent exceeded the money I actually had (obviously). So now the bank had charged me an additional $75 ìoverdraft protection fee” ó one that was accruing 94 percent interest every day. I called the bank, was placed on hold forever, and eventually, with lots of prodding, sorted things out. Youíd think I would have learned from this experience, but the truth is, I didnít. In fact, it took a year before I finally cut myself off from my credit card.† When it finally dawned on me that the stress of having a credit card outweighed the benefits, I removed my information from shopping sites and started paying for everything I could in cash. And of course it was tough ó I had to sell my economics book to pay for new running shoes because I refused to charge either to my card ó but I lived.
So maybe I deserved the label of ìcompletely irresponsible” ó I totally was. But the truth is, I was way too young, at 18, to be put completely in charge of my own financial future. And still, two years later, I donít completely trust myself to not fall back into my old ways. And Iím sure Iím not alone. I donít think Obamaís under-21 law is an attack or a disservice ó I think itís necessary protection.
Credit law postpones the inevitable
The moment you turn 18, you are considered legally an adult by the United States government. You are eligible to vote, enlist in the military, sign contracts, serve on a jury, and marry without parental consent.† But, starting in February of 2010, make sure you have cash handy because you wonít be able to get a credit card.† President Obamaís ìCredit Card Accountability, Responsibility, and Disclosure Act” prevents those under 21 from getting a credit card unless they have the co-signature of a parent or guardian or have ìproof of sufficient income.” By restricting this age group from getting a credit card, President Obama hopes to reduce debt for students before they graduate. But restricting young adults from getting credit cards will only postpone these individual financial problems.
At age 18, most people are functioning as adults.† And, in fact many of those are functioning financially as adults ó paying for their own education, books, phone, car and insurance.† If they are viewed as legal adults by the government and are responsible for themselves, then they should be treated as the adults they are.† A credit card is a tool with which a person can learn to budget money while building credit history, teaching them lessons about priorities and deadlines.† This is a necessary lesson that can be taught at any time in oneís life. Learning early on, however is more effective.
So, if someoneís parent thinks they are responsible and agrees to let them have a credit card, itís possible, right?† The act does state that someone under 21 can get a credit card with the co-signature of a parent or guardian.† But, the bank will first look at the credit history and financial stability of the co-signer.† If the personís parents are suffering from this recession, like most people are, then their credit history may not be something they are proud of.† Their child is then being judged on their finances, preventing them from taking charge of their finances and building a credit history of their own.
The act also states that if the person has ìproof of sufficient income” then they can apply regardless of being under 21.† But what exactly does sufficient mean?† The bill is vague on this criteria.† Instead of giving direct information they say that the individual must submit ìan application indicating an independent means of repaying any obligation arising from the proposed extension of credit in connection with the account” (MSN Money).† It will then be determined on a more-or-less case by case basis.† It seems like those young adults who would really benefit from having a credit card such as those that are paying their way through college or paying for all their daily expenses themselves are still being accommodated in this law.† But, it also seems as if actually obtaining a credit card under these circumstances is made very difficult on purpose.
So, the loopholes of this act seem to be unreliable ways for responsible young adults to receive a credit card.† And, by preventing this demographic from building a credit history, the government makes it hard for students when they graduate. With no credit history, it is nearly impossible to rent an apartment or lease a car on your own.† The act is supposed to prevent bad financial judgment on the part of young people, but who is to say that these problems wonít arise at age 21?
There will always be drawbacks to having a credit line. A credit card can appear like free money that allows you to buy things you would never purchase if you were using cash.† But, this act is not solving this problem; instead, it is merely postponing it.
A 21-year old getting a credit card for the first time will have to learn the same lessons about credit cards as anyone else.† John Ulzheimer, president of consumer education for credit cards, recognizes the main fault of this act, ìThereís no evidence that someone manages credit cards better at 21 than 18.” ìThe Credit Card Accountability, Responsibility, and Disclosure Act” does make key changes that will help reduce the debt of the average American, but preventing 18-20 year olds from receiving cards is only postponing a financial lesson that all young adults need to learn.