In the late 1980s, credit card companies began targeting college students in an effort to expand market share. Students were encouraged to become credit card customers through direct mail promotions, on- and off-campus advertising, and on-campus recruitment (O’Connell, 1994; Susswein, 1995). A number of researchers have documented the subsequent rapid expansion of credit card ownership and use on college campuses from the late 1980s through the 1990s (Kara, Kaynak, & Kucukemiroglu, 1994; Nellie Mae, 2002; Manning & Kirshak, 2005). In 1990, slightly over half (54%) of all undergraduate students held at least one credit card. By 2001, over three-quarters (83%) of all undergraduate students had one or more credit cards (Nel-lie Mae, 2002). These fundamental changes in how and to whom credit cards are marketed have resulted in credit cards becoming a way of life for today’s college student (Lyons, 2004; Manning & Kirshak, 2005).
As the percentage of college students with credit cards grew, the concern that credit card companies were taking unfair advantage of a vulnerable population also increased. In essence, the credit market among college students was considered imperfectly competitive. The signed credit contract was not seen as an agreement between equals.
Rather, credit card companies were viewed as enticing in experienced and unsuspecting students to sign agreements that they did not fully understand, placing them at risk of overspending and developing financial difficulties. As a result, concerned groups encouraged university and college campuses to limit the access that credit card vendors had to their student population (Brobeck, 1992; Davies & Lea, 1995).
Recent research findings suggest that college students may not be at risk to the extent initially feared, however. Although some students do have difficulty with credit, in general, college students are at least as responsible as their age peers in managing credit card use and credit card debt (Braunsberger, Lucas, & Roach, 2004; Draut & Silva, 2004). Commensurate with their low earnings and financial inexperience, card limits and balances are relatively low among college students, usually averaging a few thousand dollars (U.S. General Accounting Office, 2001). After reviewing several studies of credit card debt levels of college students, Lyons (2004) concluded that the majority of college students are not amassing excessive debt, and over one half of college-aged credit card holders pay their balance in full each month.
Questions remain, however, as to what factors enable college students to manage credit card use despite their relative inexperience in the credit market. Economic theory proposes that consumers require knowledge to make utility maximizing choices. The purpose of this study was to examine the role that knowledge of personal finance concepts and principles may play in college students’ decision to revolve a credit card balance and in the level of balance revolved. In this study, credit card revolvers were defined as respondents who did not pay their credit card balance in full at the end of the month. Study findings can broaden the understanding of factors influencing student credit card use and may be useful for consumer educators and policy makers that are interested in helping college students learn how to manage credit effectively.
Download
PDF Ebook Effect of Personal Financial Knowledge on College: Students’ Credit Card Behavior
