Tuesday, November 2, 2010

Open Post #1 – Why do big banks target college students?

Hello World!

Today we will explore the realm of personal finance. As I was scrolling through my CNN app on my BlackBerry, I came across an article entitled “Banks Spend Big to Sell Credit Cards to Students.” I was struck by this because credit cards have always made me uneasy. To me, credit cards represented fear, uncertainty and massive amounts of debt.

When I got my first credit card, I wasn’t sure if I was supposed to pay my bill in full. I was told that if I were to do this, it would indicate to the credit card company that you had no use for their card, so they had no incentive to offer you lower interest rates. In the beginning, I wasn’t even sure whether interest charges were standard or paid only if you kept a balance. I questioned whether my interest rate would fluctuate. I wondered if getting a credit card would help me improve my credit score. All these questions and more ran through my head.

Now to take a step back, I was worried about how one little piece of plastic could affect my life. Over thinking it? Maybe. But a few missteps here and there can lead to intense migraines for the future. I thought banks were supposed to have our best interests at heart, but with further consideration, they only have their best interests at heart. It may be a pessimistic outlook in life, but professional services are only concerned with you if you can pad their pockets. Back to the article, I was compelled to read further.

I was shocked to find out that in 2009 Bank of America paid colleges $62 million for the right to market their credit cards on university campuses. Banks and credit card companies alike are willing to take the financial hit with direct-marketing costs because they can project a tenfold return on investment. The marketing costs employed today will probably pale in comparison to the massive amounts of interest revenue accrued from the debt that students take on in college. If you think about, this hurts our economy in the long run. As these college students graduate and become members of the workforce, a large portion of their income will go towards paying down their student loan debt. This is money that would be better spent funneling back into our economy to stimulate growth in real estate and the stock market, etc.. This might seem like a dramatic exaggeration, but when we take a step back to calculate where in the heck all our money goes, we might find that a large portion of it wasn't that necessary. Take a minute to think about unnecessary luxuries, and focus on the bare necessities. Failure in paying down the principal of a loan or balance on a credit card can lead to disastrous financial ruin. Can we say Real Housewives of New Jersey?

Which brings us to a question for self-reflection…..Why did I just buy that?

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