October 26, 2012

The Globe and Mail today commented on a study conducted by the Canadian University Survey Consortium of more than 15,000 Canadian university students completing their undergraduate programs that found almost nine out of 10 students had one credit card - and that 26 per cent have two or more cards.

Very interesting. Regardless of the many questions that such studies bring like, how do you get access to the student’s personal banking information (do you ask them?), students have and use credit cards, presumably like everyone else. The study doesn’t tell us what students use the credit cards for or how high the balances are or the interest rates they pay.

Rob Carrick in the above article goes on to blame the invasion of credit cards onto university campuses on bank advertising and our consumption-driven economy. Hum.

Let’s stop here and reflect for a moment. Isn’t this the same image that governments paint about the household debt crisis? That people just won’t stop shopping (even though they complain and blame recessions on consumers because they don’t spend enough). According to them the real problem with credit cards and debts is, well, the consumer and their irresistible urges to consume.

The fact of the matter is that we do not know much about the demographics of consumer debt in general and students in particular. We simply hear interpretations and assertions, mainly from those who lend the money or benefit from the sale or usage of credit products. The message is almost always the same. It’s a handful of dumb or reckless consumers that can’t manage their debt that causes all of the trouble.

Nothing is said or mentioned about the excessively expensive costs of a university education. Isn’t this a logical starting point to examine why people use credit? How many students using credit cards also have student loans? If you have a student loan this normally would mean that you could not afford to attend college or university without borrowing money – huge sums of money.

Little information is given regarding the income groups of those who use credit cards or who pays them off in thirty days. It would be a logical presumption that wealthy students and families would pay off their credit cards in 30 days to avoid interest charges. They do this not because they are smarter than middle or lower income families, but because they have a lot more money.

Other important demographics include:

  • Geographical regions. People in economically depressed areas might use more credit than other more prosperous regions.
  • People in economically deprived areas may also experience greater difficulty in paying the credit cards and student loans off than others.
  • Family type – how many of the students using credit cards are single, married with and without children, separated with and without children, same-sex, lone parent or blended families. This is very relevant as the costs to raise children are very challenging and probably involve the usage of credit cards and student loans.

There are many other significant factors that involve the usage of credit. The point, however, is that it has been my experience that not too many people are dumb or obsessive shoppers. They struggle to make ends meet primarily because their incomes are not high enough to meet all of the household costs.

When I hear assorted experts blame compulsive or over-zealous shoppers for the high household debt levels I wonder, who are they hangin' around with?