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Article information:
To cite this document:
Jacquelyn Warwick Phylis Mansfield, (2000),"Credit card consumers: college students knowledge and attitude", Journal of
Consumer Marketing, Vol. 17 Iss 7 pp. 617 - 626
Permanent link to this document:
http://dx.doi.org/10.1108/07363760010357813
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Phylis Mansfield
Introduction
The credit card industry has developed into a major financial service used by
the majority of US households across all income classes. What evolved from
relatively humble beginnings following the Second World War, is now a
major system that stimulates household and personal spending. For example,
with the recent introduction of credit availability in the fast food industry,
credit sales are now 50-100 percent larger than cash transactions (Ritzer,
1995).
``Baby Busters''
In many cases, consumers today live on or over the financial edge often
spending everything they make, or more than they make, not even realizing
their expenditures consistently exceed their income (Mapother, 1999).
``Baby Busters'' have been raised in a credit card society; they grew up with
debt and use credit freely. To some, the money involved in credit card
transactions is abstract and unreal (Roberts, 1998), to others, obtaining more
credit is the equivalent to obtaining additional income (Mapother, 1999).
This attitude toward credit can exacerbate credit card debt and personal
bankruptcy.
The FDIC reported that banks suffered $3.8 billion in losses on credit cards
and consumer loans in 1996, a 36 percent increase over the same period in
1995 (Roberts, 1998). In 1997, 1.26 million people filed for personal
bankruptcy (Paquin and Squire-Weiss, 1998), that number increased to
1.4 million in 1998. Paquin and Squire-Weiss (1998) suggest the change in
the personal bankruptcy rate can be explained by the combination of four
determinants (three with direct correlation to credit cards): the supply of
consumer credit, consumers capacity to service their debt, the condition of
the job market, and interest rates.
Lessening of credit card debt can come about through an increase in
awareness and understanding in the use of credit. However, awareness and
understanding are different; companies listing credit card interest rates
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JOURNAL OF CONSUMER MARKETING, VOL. 17 NO. 7 2000, pp. 617-626, # MCB UNIVERSITY PRESS, 0736-3761
617
increase awareness of the price of credit but this does not guarantee
improvement in consumer understanding. Thus, mandatory disclosure of
information itself (which leads to awareness) does not help consumers make
effective credit decisions unless they understand the information provided.
There is a general consensus that consumers' lack of understanding is a
problem in credit markets (Lee and Hogarth, 1999).
A lucrative market
Nearly three in four US households receive at least one credit card offer every
month with many offers being sent to college students. College students are
seen as a lucrative market since they have higher than average lifetime
earnings and are just beginning a major transition period which is a key time
to change previous behaviors. Collegians are just beginning a cycle of
``firsts''; there is the first dorm room, first apartment, first job and, in
conjunction with these, the first laundry, first long distance service, and first
credit card (Speer, 1998). Given that for many students credit cards are a first,
this paper will look at the attitudes college students have toward credit cards
as well as how knowledgeable they are concerning the use of credit cards.
618
delinquency and chargeoff rates are often no worse, and in some cases are
better, than the general public (Ring, 1997) some are not convinced.
Education officials worry about students accumulating both student loan and
credit card debt. Student loan provider, Nellie Mae, state undergraduate
credit card balances average $2,000 with 14 percent having balances of
$3,000 to $7,000 dollars and 10 percent owing amounts exceeding $7,000
(Vickers, 1999). The Chicago Tribune quotes Indiana University
administrator John Simpson as saying:
We lose more students to credit card debt than academic failure (Commercial Law
Bulletin, 1998).
Yet in a recent survey it was found that four out of five college students had
balances of $1,000 or less with more than half paying off their balances at
the end of the month and those who paid by installment usually paying more
than the required minimum (Merrick, 1998).
Another survey, conducted by the US Public Interest Research Group found
the average unpaid balance to be similar to the first with the average $986
(Commercial Law Bulletin, 1998) while a third survey indicates that 63
percent of four-year college students carry credit balances of at least $2,000
(Feldman et al., 1999). There is also anecdotal evidence suggesting that
many under graduates are acquiring big balances in school, some even
graduating with a five figure credit card debt. Although as noted, there is a
wide array of differences in the information being reported, some colleges
are not waiting for a definitive answer and are reining in card issuers. Also,
lawmakers in some states, including New York and Massachusetts, are trying
to ban card marketers from colleges altogether (Rose, 1998).
Reasons for possessing a
credit card
Financial literacy
College students argue they want and often need a credit card. A 1995
Roper College Track poll asked students why they had a credit card. The
responses were: ``to establish a credit history'' 65 percent, ``to meet
emergency needs'' 35 percent, and ``to become more financially
responsible'' 18 percent (Newton, 1998). Although not opposed to their
reasons for possessing a credit card, academics (as well as consumer
advocates) feel an ethical obligation to serve the students' interests by
determining the best way to educate them on what it means to have a
revolving line of credit and how to manage credit responsibly (Hultgren,
1998). Although the obligation is noted, relatively few college students
study personal finance, making primary and secondary schools the only
places where the vast majority of young Americans can acquire financial
survival skills (Mandell, 1999).
Students' knowledge of credit cards
A 1999 Youth and Money Survey found that most 16-22 year old US high
school and college students do not know much about personal finance.
Many are not confident about their knowledge of basic financial matters
with only 15 percent stating they understand money very well, and only
18 percent agreeing that they do a good job of managing their money
(Merrick, 1999). With an estimated 85 percent of college students having a
credit card in their name (Ring, 1997) some credit card issuers are beginning
to recognize that college students need instruction in how to be good credit
card customers. Visa has run a media campaign aimed at teaching students
how to use credit wisely (Speer, 1998). Visa is also sending out kits to
freshman orientation leaders at 4,000 colleges, along with advice on how
students should select credit lines. They are also planning to stage mock
game shows on 20 college campuses to quiz students about their financial
619
Aggressive promotion
tactics
The study
Research questions
Given the pressure the credit card industry puts on college students today to
attain a credit card, evidenced by the aggressive promotion tactics employed
on college campuses, this paper will address the following primary questions:
(1) How are students attaining their credit cards?
(2) Are students knowledgeable about credit?
(3) What are the students' attitudes towards credit cards?
Additionally, the study will explore the question of whether or not there are
differences between demographic groups with regard to their attitudes
toward credit.
Sample frame
Methodology
The sample frame for this study was both graduate and undergraduate
students at a small, private university in the Midwest, whose population of
3,100 is predominantly on-campus residents (95 percent). Since
approximately 80 percent of the university's population visits the cafeteria
on any given day, the students were approached by a researcher and asked to
take part in the study. A total of 381 usable surveys were obtained,
representing approximately 12.3 percent of the total university's student
population. Simple t-tests showed there was no significant difference
between the sample characteristics and the total university population. A
breakdown of the sample by demographic characteristics is shown in Table I.
An exploratory study was conducted using descriptive frequencies and
percentages to describe the data. Additionally, cross-tabs were used to
analyze differences between various demographic characteristics, reporting
the chi-square statistic at the 0.05 level of significance.
Demographic characteristic
Percent
Gender
Male
Female
171
207
44.9
54.3
Age
18-20
21-23
24-26
27 and over
173
144
34
25
45.4
37.8
8.9
6.6
Class standing
Freshman
Sophomore
Junior
Senior
Graduate
94
75
90
75
38
24.7
19.7
23.6
19.7
10.0
Note: n = 381
Findings
Promotion of credit cards
With card applications available in numerous formats, this study first
addressed how students attained an application. Of those students reporting
ownership of a credit card, only 15 percent had attained them by requesting
an application directly from the company. Another 37 percent received the
credit card application through unsolicited mail. Students typically receive
unsolicited mail through several venues: commercial mailing lists through
memberships to music or book clubs, magazine subscriptions, or by
completing sweepstakes entry cards. Another 33.6 percent of the students
received the application for a credit card at the school itself, either at kiosks
located at special school events, or commonly distributed in the ``bag'' for
carrying purchases from the school bookstore.
Job requirements
Credit limit
Although almost half reported that they did not know their credit limit or credit
balance, students do appear to be more knowledgeable about the credit limit
amount than the interest rate on their credit card. A total of 57 percent of the
students said they knew what the credit limit amount was on their card
(Table IV), and 52.5 percent of the students knew what the current balance
was on their account (Table V), compared to 29 percent knowing its interest
rate (Table III). Further studies may determine why students appear to be more
aware of their card's credit limit and balance than they are of its interest rate.
Number of cards
Percent
None
One card
Two cards
Three cards
Four cards
Five cards
Over five cards
127
87
77
49
16
7
15
33.5
22.8
20.2
12.9
4.2
1.8
3.9
Note: n = 378
621
Percent
271
4
2
6
4
6
7
4
13
20
15
29
71.1
1.1
0.5
1.6
1.0
1.6
1.8
1.0
3.4
5.2
3.9
7.6
Note: n = 381
Do not know
$500
$501 to $1,000
$1,001 to 1,500
$1,501 to 2,000
$2,001 to 2,500
over $2,500
Percent
164
41
77
22
17
6
54
43.0
10.8
20.2
5.8
4.5
1.6
14.2
Note: n = 381
Percent
Do not know
$500 or less
$501 to $1,000
$1,001 to 2,000
$2,001 to 3,000
$3,001 to 4,000
over $4,000
181
109
56
18
6
4
7
47.5
28.6
14.7
4.7
1.6
1.0
1.9
Note: *n = 381
622
Students' knowledge of
credit
Benefit ratio
Gender
M
F
18-20
4
115
34
14
Age group
21-23 24-26
1
97
31
11
0
22
6
6
Over 26
0
14
7
1
623
card solicitation by issuing banks on campus. However, this may not be the
ultimate solution since there are multiple sources where students may
acquire credit card applications, as well as it does nothing to educate further
the student on the basic principles of using credit. In this study, 71 percent of
the students did not know the interest rate on their card, 43 percent their
credit limit, and 48 percent their current balance amounts. Therefore, student
education may be an alternative to prohibiting on-campus credit card
solicitation.
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