Jerousek 1
Jeff Jerousek
Lisa Davis
ENG 102
11/08/2009
Project 3: Evaluation
More young people are graduating college with more debt than ever before. The United States government has decided to combat this by instituting a minimum age limit of twenty one years on credit cards through the Credit Card Accountability Responsibility and Disclosure Act of 2009 or the CARD act. At the same time more young people are putting off or deciding against secondary education because of monetary constrains. There are some exceptions to this new law. A parent or guardian can co-sign an account with the young person or if the young person is able to prove they have a sufficient income they can get the co-signer requirement waived. The Card act will significantly improve and provide much needed regulation to the credit card industry, such as require credit card companies to give consumers 45 days advance notice of any change in terms. However, the focus of this paper is solely limited to the raising of the minimum age requirement for credit cards which is discriminatory, strengthens economic divides, and is un-American.
The Equal Credit Opportunity Act was a major step forward in the advancement of rights for all adults. Just a few decades ago women were denied credit because it was taken for granted that their husbands could handle finances for them (CardRatings). How is requiring a co-signer for someone under twenty one (a legal adult in the United States) not the same? The CARD Act completely conflictswith the Equal Credit Opportunity Act. These same adults who are allowed to take part in the democratic process and have the choice to defend and serve their country can no longer be trusted to manage their own finances or be expected to pay back a loan. If this law had affected me as young person, I certainly would have taken offense at a government who can't manage its own deficit saying I wasn't responsible enough to manage my own finances without my parent's taking responsibility for me. Ironically, young people under twenty one are still allowed to receive Stafford loans. The writers at Cardratings.com argue that these loans can be far more damaging than credit card debt. The average credit card debt for graduating students tends be about $8,500. While if a student takes all the loans available to them throughout four years of school, their debt can easily amount to $27,000 or more(CardRatings). The penalties are the same if a young person defaults on their student loans as they are on a credit card. Interest rates can go up, wages can be garnished and your bill can be sold to a debt collector. If Congress feels that young people are not capable of managing a line of credit, then student loans seems to be a glaring omission, especially when the graduates have almost four times the amount of debt in loansthen they do on their credit cards. America seems to have two ages of maturity today, at eighteen we let young people be tried as adults, go to war for their country, marry, vote and buy lottery tickets. Not until young people are three years older do we allow them to drink or gamble or now with the passage of this act, give them opportunity to be financially responsible. Starting next year young people who are 18 will be able to buy a lottery ticket, but they won't be able to own a credit card.
The CARD act also promotes classism and further strengthens economic divides. Young people with a co-signer can open a line of credit when they turn eighteen. The young people who are most likely to open a line of credit with a co-signer are those with reasonably wealthy or affluent parents who can take on the risk. Those young people with parents who don't have a reasonably good credit score or the financial capital to take the risk of having their children on a card will not be able to.Co-signing is a risk. There are any number of horror stories of parents helping their children get a better mortgage by co-signing for a house, only to be left with a second mortgage that their children are unable to pay. For this reason almost everyone in the financial industry will tell you that co-signing is a bad idea.Despite safeguards and alternative methods of building credit, such as a secured credit card, these young people will be unable to get a card before twenty one without proving that they have sufficient means for repayment and or a willing co-signer, for no significant reason other than their age. However, there has been no information on what sufficient means for repayment might mean. Not that credit card companies currently use any stipulations for a credit limit besides what an applicant lists as a household income and current credit score. Will it be based on a level of income, savings, or will it look at both. What about young people who take jobs that traditionally aren't reported as income, such as a lawn mowing service, babysitting, or paper route?There are the young people who have saved the monetary gifts they received for birthdays and graduations, will they not have a sufficient level of income? Will they be unable to open a line of credit without the proper documentation of their finances? These are important questions that must be answered before we hail this minimum age as a good idea. There are significant gaps in the financial literacy of young people today. Many young people are not well equipped to make intelligent financial decisions. Only 27% of the young people in a survey at Dartmouth possessed knowledge of basic financial concepts like inflation, diversification and interest rate calculations(Lusardi). The survey also found that financial illiteracy is particularly acute among specific groups such as women, Blacks, Hispanics and those with low educational attainment. Given what should be shocking numbers and demographics it's clear that we our failing our youth. Is it at all plausible that by extending an age limit an arbitrary three years is going to improve young people's financial literacy? Spending our time, money, and efforts on educating America's young people about financial situations would be a much more beneficial endeavor as well as lessening the divides created by young people with parents who have little to no financial literacy.
The credit CARD act will stifle innovation. Microsoft and Face book were both founded out of dorm rooms. Their founders were a mere 20 years old (CardRatings). The next Bill Gates or Mark Zuckerberg will have to wait another year to launch their startup and just hope that someone around the globe doesn't have a similar idea. Not to mention the college graduates five years from now who are going to have trouble buying a car, a home, getting a good insurance rate, or having a landlord rent them an apartment. With no credit history they'll have the same credit score they would have with bad credit. Giving those who had qualified for a card before twenty oneand who had a card throughout college and a decent credit score will have a better advantage when it comes buying a house or a car. Some cases even finding a job could depend on establishing a good credit history as many employers today are starting to look at a prospective employee's credit history. Having student loans is of no help when trying to build a credit score while in college as those loans aren't reported on a young person's score until they enter the repayment period usually after they have graduated (CardRatings). I'm an exception to the rule as I had two credit cards a month after I turned eighteen. I spent hours researching how they worked and how others had gotten in to trouble. I learned how to take advantage of the special offers and I understood the risks and costs of carrying a balance. With a clear understanding of credit cards and how they work, I've managed to significantly enrich my life. I can travel with the understanding that I can pay for emergencies like a tow truck or a repair for my car. With my good credit score, I was even able to pay for an eye surgery to improve my vision, for 12 months at 0% interest. This new law will prevent young people from obtaining the independence and freedom of the American Dream whether that dream for them is trying to make their own fortune, own a home, or travel the world.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 is a bad idea for young people. Not only is it discriminatory towards America's youth, but alsoit puts a completely arbitrary three years on young person's ability to open a line of credit when they can already go to war, vote, serve on a jury be tried as an adult, and buy a lottery ticket. It furthers economic divides by making credit cards more available to young people with affluent parents and makes the lives of young people with less affluent parents significantly harder by making credit cards less available to them.Building a credit history becomes more difficult in a society where we depend on a credit score to determine a person's insurance and mortgage rates as well as determining if they would be a good renter. Thanks to a well grounded financial literacy and a good credit score my vision is now 20/20 and I can clearly see the credit CARD act is bad idea for young people.
Works Cited
Lusardi, Annamaria, Olivia S. Mitchell, and Vilsa Curto. "Financial Literacy among the Young: Evidence and Implications for Consumer Policy ." 2009. 1-34. Database. 10-29-2009. Social Science Research Network. Retrieved at Dartmouth.edu.
" Why the Credit CARD Act Is Actually REALLY BAD for Students." CardRatings Blog. CardRatings, 11 009 2009. Web. 29 Oct 2009.