Gen Xers yearn to carve a new direction for society. Unfortunately, the direction appears to be straight into debt. Americans between the ages of 25 and 34 now boast the second-highest rate of bankruptcy, just behind the 35-44 group. The average credit card debt for this group increased by 55 percent between 1992 and 2001, with the average young adult household now spending approximately 24 percent of its income on debt payments.
Let me warn you right now that I might come across a bit harsh in this article. I want to arouse some strong feelings in you about the absolute disaster that is taking place with my generation (at the time of writing this, I’m a wise 24 – there goes my credibility).
Let’s talk about why college students go into debt. Remember this: I live on student family housing at a private university. I have been going to Brigham Young University since April of 2002. Virtually all of my friends are college students. Because we are all broke, we can talk about personal finances with little inhibition. What I mean by all of this is that I am privy to very real information from real college students.
At times, we hear an initially sad story from a college student. Their car breaks down and all of a sudden they’re in need of some cash. So they charge the repairs to the credit card. If you aren’t careful, your first instinct might be: Well, that poor college student. How could they have known their car would break down? It’s unfortunate.
Yes, it’s unfortunate the student’s car broke down. And no, of course they couldn’t know the car was going to need some major repairs any time soon. But this is the crucial issue:
What transactions took place before the unfortunate event?
In my experience, usually you can find the following transactions: a ski pass they just had to have, multiple transactions that took place at any number of fast-food chains, a gym membership that’s a “necessity”, wireless internet, new software/games for a computer, and a few new DVDs for the apartment’s collection. This is just an example and I am not exaggerating. I’m speaking from direct experience here.
Is it bad to purchase these things? Of course not. I merely want to make a point. The college student is strapped for cash come car-repair time not because they do not have any money, it is because they already spent their money. That is a critical difference.
With undergraduates holding average credit card balances above $3,000, we really shouldn’t look at what they purchased with the credit card, because often-times we’ll see that those purchases, at first pass, appear legitimate. You’ll see a charge for textbooks, tuition, car repairs, etc. And you think, well, these things can’t be helped. But look at the previous purchases. Where did the money go before these credit card transactions “needed” to happen? That is the key.
I can think of no demographic that is in more need of a budget than the college student demographic. Budgeting certainly does not sound cool. You don’t talk about it on your way up to the slopes. If you really do budget, you probably keep it to yourself. You’re a nerd, and you don’t want people to know about it.
But the college student population, with all of their supposed wisdom and street smarts, apparently doesn’t know how to live within their means. Those car repairs did not necessitate use of a credit card – your overspending prior to that unfortunate event is what necessitated the use of that card. Your lack of planning is what gave that credit card transaction its supposed blessing.
Budgeting is hip. It’s cool. I’m one of you, but I budget. I don’t owe anybody anything. I’m a graduate student with money socked away come time to drop my several thousand dollars each semester to pay for some (hopefully) great wisdom. Where did the money come from? I earned it, and didn’t subsequently spend it. Has my car broken down? Yes. Did I charge it? No. Where did the money come from? I earned it, and didn’t subsequently spend it.
Please don’t see this as a bragging session, but allow me to be even more open. I am married with a little boy and my part-time income is the sole source of cash for our family. I do not make a lot of money. How do I make each dollar work so hard? I tell it where to go, and it does what I say, because at the beginning of the month, I sit down with my wife and we plan.
Budgeting is in.
Your Next Step
Budgeting is not restrictive. You won’t be spending less, you’ll be spending right. So what do you have to lose? Except all that debt and stress?