[Congressional Record Volume 147, Number 66 (Tuesday, May 15, 2001)]
[Senate]
[Pages S4957-S4961]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DODD:
  S. 891. A bill to amend the Truth in Lending Act with respect to 
extensions of credit to consumers under the age of 21; to the Committee 
on Banking, Housing, and Urban Affairs.
  Mr. DODD. Mr. President, I rise today to introduce legislation 
designed to help avoid the growing problem of credit card indebtedness.
  This legislation is fairly straightforward. It would not prohibit 
people younger than 21 from obtaining a credit card. It simply requires 
that when issuing credit cards to persons under the age of 21, the 
issuers obtain an application that contains: 1. the signature of a 
parent, guardian, or other qualified individual willing to take 
financial responsibility for the debt; or 2. information indicating 
that the young person has a job or some means of repaying any credit 
extended; or 3. proof that applicant has completed a certified credit 
counseling course.
  One of the most troubling developments in the hotly contested battle 
between credit card issuers to sign up new customers has been the 
aggressive way in which they have targeted people under the age of 21, 
particularly college students.
  Solicitations to this age group have become more intense for a 
variety of reasons. First, it is one of the few market segments in 
which there are always new customers to go after; every year, 25 to 30 
percent of undergraduates are fresh faces entering their first year of 
college.
  Second, it is also an age group in which brand loyalty can be readily 
established. In the words of one major credit card issuer: ``We are in 
the relationship business, and we want to build relationships early 
on.'' In fact, most people hold on to their first credit card for up to 
15 years.
  Many, if not most, credit card issuers exercise prudence in issuing 
cards to young people. But some credit card issuers do not. They target 
vulnerable young people in our society and extend them large amounts of 
credit with little if any consideration to whether or not there is a 
reasonable expectation of repayment. As a result, more and more young 
people are falling into a financial hole from which they were unable to 
escape.
  Experts estimate that the current economic downturn could force a 
record 1.5 million Americans into bankruptcy this year. About a third 
of them will be in their 20s and early 30s. According to the American 
Bankruptcy Institute, just five years ago, only 1 percent of personal 
bankruptcies filed were by those age 25 or younger. By 1998, that 
number had risen to nearly 5 percent.
  Financial regulators, including the Federal Reserve Board and the 
Federal Deposit Insurance Corporation, have stated that loans made 
without consideration of the borrower's ability to repay constitutes an 
``unsafe and unsound'' business practice. They have criticized such 
lending practices as ``imprudent.'' Thus, an economic downturn coupled 
with ``imprudent'' lending practices could have a devastating effect 
not only on credit card consumers, but on financial institutions, as 
well.

  The business practices of many credit card companies on college 
campuses are extremely troubling. Some credit card issuers actively 
entice colleges and universities to help promote their products. 
According to University of Houston Professor Robert Manning, during the 
next five years, banks will pay the largest 250 universities nearly $1 
billion annually for exclusive marketing rights on campus.
  A recent ``60 Minutes II'' piece vividly illustrated the impact that 
credit card debt can have on college students. A crew form the show, on 
a major public university campus, and with the use of hidden cameras, 
filmed vendors pushing free T-shirts, hats, and other enticements with 
credit card applications. ``60 Minutes II'' revealed that this 
university is being paid $13 million over ten years by a credit card 
company for the right to have a presence on campus and use the 
university logo on its cards.
  This public university is making money off students who use these 
credit cards, the report said. As part of the agreement, the university 
receives 0.4 percent of each purchase made with the cards. In a sense, 
this university has a vested interest in getting their students in as 
much debt as possible.
  The ``60 Minutes II'' piece also told the story of one student, Sean 
Moyer, and his desperate attempts to handle massive credit card debt. 
This student's life began to spin out of control as the huge debts he 
racked up in just three years of college began to become, in his mind, 
insurmountable. As a result of mounting credit card debts, he was 
unable to get loans to go to law school like he dreamed, and his 
parents could not afford to pay his way. So in February 1998, Sean took 
his own life.
  ``It is obscene that the university is making money off the suffering 
of their students,'' said Sean Moyer's mother. Sean Moyer had 12 credit 
cards and more than $10,000 in debts when he committed suicide nearly 
three years ago, she related. He had two jobs: one at the library and 
another as a security guard at a local hotel, but he still could not 
pay his collectors, she said.
  Even three years after her son's death, she still gets pre-approved 
credit

[[Page S4958]]

card offers in Sean's name from some of the same companies that he owed 
thousands of dollars. One company pre-approved Sean for a $100,000 
credit line, she said.
  Last Congress, I went to the main campus of the University of 
Connecticut to meet with student leaders about this issue; quite 
honestly, I was surprised at the amount of solicitations going on in 
the student union. I was even more surprised at the degree to which the 
students themselves were concerned about the constant barrage of offers 
they were receiving.
  These offers seem very attractive. One student intern in my office 
received four solicitations in just two weeks, one promised ``eight 
cheap flights while you still have 18 weeks of vacation.'' Another 
promised a platinum card with what appeared to be a low interest rate, 
until one reads in the fine print that it applied only to balance 
transfers, not to the account overall. Only one of the four offered a 
brochure about credit terms but, in doing so, also offered a ``spring 
break sweepstakes.''

  Last year, the Chicago Tribune reported that the average college 
freshman will receive 50 solicitations during their ``first few 
months'' at college. It further reported that ``college students get 
green-lighted for a line of credit that can reach more than $10,000, 
just on the strength of a signature and a student ID.''
  There is a serious public policy question about whether people in 
this age bracket can be presumed to be able to make the sensible 
financial choices that are being forced upon them from this barrage of 
marketing.
  While it is very difficult to get reliable information from credit 
card issuers about their marketing practices to people under the age of 
21, the statistics that are available are disconcerting.
  Nellie Mae, a major student loan provider in New England, conducted a 
recent survey of the students who had applied for student loans. It 
termed the results ``alarming.'' The study found: 78 percent of all 
undergraduate students have a least one credit card--up from 67 percent 
in 1998; of those students, the average credit card balance is $2,748, 
up from $1,879 in 1998; and 32 percent of undergraduates had four or 
more credit cards.
  Some college administrators, bucking the trend to use credit card 
issuers as a source of income, have become so concerned that they have 
banned credit card companies from their campuses, and have even gone so 
far as to ban credit card advertisements from the campus bookstore. 
Recently, colleges around the nation, ranging from New York's SUNY 
Buffalo to Georgia Tech in Atlanta, have begun to ban the marketing of 
credit cards on their campuses.
  Let me touch on an important component of this amendment--credit 
counseling. Much as we encourage children who reach driving age to take 
drivers' education courses to prevent automobile accidents, we should 
teach younger consumers the basics of credit to avoid financial wrecks. 
Educating our nation's youth about the responsibilities of financial 
management is critical, and we do not currently do a good enough job in 
this area.
  While there is overwhelming evidence that student debt is 
skyrocketing, most surveys also show that this same group of consumers 
is woefully uninformed about basic credit card terms and issues.
  According to the Jump$tart Coalition for Personal Financial Literacy, 
a nonprofit group which conducts an annual national survey on high 
school seniors' knowledge of personal finance, basic financial skills 
are even poorer today than they were three years ago.
  I agree with those who argue that there are many millions of people 
under the age of 21 who hold full time jobs and are as deserving of 
credit as anyone over the age of 21. I also agree that students should 
continue to have access to credit and that we should not try to 
prohibit the market from making that credit available.
  However, the period of time from 18 to 21 is an age of transition 
from adolescence to adulthood. As we do in many other places in the 
federal law, some extra care is needed to make sure that mistakes made 
from youthful inexperience do not haunt these young people for the rest 
of their lives.
  Federal law already says that people under the age of 21 shouldn't 
drink alcohol. Our tax code makes the presumption that if someone is a 
full-time student under the age of 23, they are financially dependent 
on their parents or guardians.
  Is it so much to ask that credit card issuers find out if someone 
under the age of 21 is financially capable of paying back the debt? Or 
that their parents are willing to assume financial responsibility? Or 
that they understand the nature and conditions of the debt they are 
incurring?
  Many responsible credit card issuers already require this information 
in one form or another. Is it too much to ask that the entire credit 
card industry strive to meet their own best practices when it comes to 
our kids?
  Providing fair access to credit is something I have fought for 
throughout my tenure in the United States Senate. And credit cards play 
a valuable role in assisting in their pursuit of the American dream. I 
do not believe that this legislation is either unduly burdensome on the 
credit card industry or unfair to people under the age of 21.
  The fact of the matter is that excessive solicitations assume that if 
the young adult is unable to pay, they will be bailed out by their 
parents. Many times this means that parents must sacrifice other things 
in order to make sure that their child does not start out their adult 
life in a financial hole or with an ugly black mark on their credit 
history.
  This measure is critical to ensuring that credit cards are both 
issued and used responsibly. I urge my colleagues to support this 
important legislation.
  I ask unanimous consent that the text of the bill, a letter of 
endorsement from Consumers Union, the Consumer Federation of America, 
and the U.S. Public Interest Research Group, as well as referenced 
newspaper articles be printed in the Record.
  There being no objection, the bill and additional material were 
ordered to be printed in the Record, as follows:

                                 S. 891

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Underage Consumer Credit 
     Protection Act of 2001''.

     SEC. 2. EXTENSIONS OF CREDIT TO UNDERAGE CONSUMERS.

       Section 127(c) of the Truth in Lending Act (15 U.S.C. 
     1637(c)) is amended by adding at the end the following:
       ``(6) Applications from underage consumers.--
       ``(A) Prohibition on issuance.--No credit card may be 
     issued to, or open end credit plan established on behalf of, 
     a consumer who has not attained the age of 21, unless the 
     consumer has submitted a written application to the card 
     issuer that meets the requirements of subparagraph (B).
       ``(B) Application requirements.--An application to open a 
     credit card account by an individual who has not attained the 
     age of 21 as of the date of submission of the application 
     shall require--
       ``(i) the signature of the parent, legal guardian, or 
     spouse of the consumer, or any other individual having a 
     means to repay debts incurred by the consumer in connection 
     with the account, indicating joint liability for debts 
     incurred by the consumer in connection with the account 
     before the consumer has attained the age of 21;
       ``(ii) submission by the consumer of financial information 
     indicating an independent means of repaying any obligation 
     arising from the proposed extension of credit in connection 
     with the account; or
       ``(iii) proof by the consumer that the consumer has 
     completed a credit counseling course of instruction by a 
     nonprofit budget and credit counseling agency approved by the 
     Board for such purpose.
       ``(C) Minimum requirements for counseling agencies.--To be 
     approved by the Board under subparagraph (B)(iii), a credit 
     counseling agency shall, at a minimum--
       ``(i) be a nonprofit budget and credit counseling agency, 
     the majority of the board of directors of which--

       ``(I) is not employed by the agency; and

       ``(II) will not directly or indirectly benefit financially 
     from the outcome of a credit counseling session;

       ``(ii) if a fee is charged for counseling services, charge 
     a reasonable fee, and provide services without regard to 
     ability to pay the fee; and
       ``(iii) provide trained counselors who receive no 
     commissions or bonuses based on referrals, and demonstrate 
     adequate experience and background in providing credit 
     counseling.''.

     SEC. 3. REGULATORY AUTHORITY.

       The Board of Governors of the Federal Reserve System may 
     issue such rules or publish such model forms as it considers 
     necessary to carry out section 127(c)(6) of the Truth in 
     Lending Act, as added by this Act.

[[Page S4959]]

     
                                  ____
                                Consumer Federation of America

                                                     May 14, 2001.
       Dear Senator Dodd: Consumers Union, the Consumer Federation 
     of America, and U.S. Public Interest Research Group support 
     the Underage Consumer Credit Protection Act of 2001 that 
     addresses the growing problem of credit card debt among young 
     Americans.
       Your bill would require that a credit card issuer undertake 
     reasonable steps to verify that students have the means to 
     repay their credit card debts. In the alternative, a credit 
     card could be issued to a student who completes a credit-
     counseling course. This is a reasonable approach--to protect 
     the safety and soundness of financial institutions and help 
     American's youth who every day face aggressive marketing 
     tactics from the credit industry.
       According to bank regulatory agencies, including the 
     Federal Reserve Board and the Federal Deposit Insurance 
     Corporation, making loans without any regard for the 
     borrower's ability to repay, as card issuers do with college 
     students, is ``unsafe and unsound.'' The regulators have 
     criticized such lending practices as ``imprudent.'' The 
     student loan corporation, Nellie Mae, said in a recent report 
     that the increase in the number of students having a credit 
     card includes students who would not have been given credit 
     cards in past year, certainly not without a co-signer. The 
     report also pointed to the need for counseling students at 
     the front end--before the student obtains a credit card. 
     Nellie Mae found that: Some students unwittingly accumulate 
     credit card debt, not consciously planning ahead whether they 
     can afford to borrow that sum, and not aware of the actual 
     finance charges they will pay over time. Having a card 
     doesn't necessarily indicate knowledge about the 
     ramifications of borrowing in general; nor does it show that 
     the student has evaluated the benefit and costs of borrowing 
     with a credit card vs. other types of financing. Without 
     assistance, these students may not have the know-how to 
     borrow wisely on the front end.
       The credit card industry has targeted America's youth with 
     relentless marketing ploys and tactics that seem designed to 
     drive those students into debt. According to Nellie Mae, more 
     than 70 percent of undergraduates possess at least one credit 
     card. The average debt for undergraduates who do not pay off 
     their bill every month is more than $2,000. Many students end 
     up dropping out of school under the weight of such debt. 
     Congress should respond to this growing crisis on college 
     campuses. And the problem could get worse as high school 
     students are also receiving credit card offers.
       Many colleges and universities not only permit aggressive 
     credit card marketing on campus; they actually benefit 
     financially from this marketing. Credit card issuers pay 
     institutions for sponsorship of school programs, for support 
     of student activities, for rental of on-campus solicitation 
     tables, and for exclusive marketing agreements, such as 
     college ``affinity'' cards.
       Congress should require lending institutions to act in a 
     safe and sound manner by verifying that the person to whom 
     that credit card issuer is extending credit has the ability 
     to repay. In the absence of acting in a safe and sound 
     manner, the least that could be done is to give student's 
     some of the tools that could be useful in avoiding financial 
     trouble through credit counseling at the front end. The 
     Senate should pass the Underage Consumer Credit Protection 
     Act to preserve the soundness of our financial institutions 
     and help America's youth handle the aggressive credit card 
     industry practices.
     Frank Torres,
       Consumers Union.
     Travis Plunkett,
       Consumer Federation of America.
     Ed Mierzwinski,
       U.S. Public Interest Research Group.
                                  ____


                [From the Chicago Tribune, May 7, 1999]

   Charged With Teaching Young People To Save; Educational Campaign 
 Attempts To Give Students Basic Financial Survival Skills, Including 
                            Handling Credit

                           (By Humberto Cruz)

       It should come as no surprise. Forty percent of American 
     students between the ages of 16 and 22 said they are likely 
     to buy a pair of jeans or something similar they ``really'' 
     like even if they are short of money.
       And 22 percent would pay for it with a credit card.
       But then, isn't that what they see their parents do? Deeper 
     in debt then ever before, Americans owe a record $565 billion 
     on credit cards, or more than $7,000 per balance-revolving 
     household, based on figures from the Federal Reserve.
       ``We have an economy that encourages people to borrow and 
     spend more than they have,'' said Dallas L. Salisbury, 
     chairman and CEO of the American Savings Education Council in 
     Washington, D.C.
       Salisbury is talking about the barrage directed at all of 
     us to spend, spend, spend. The enticing offers to sign up for 
     home-equity loans greater than the value of our homes. The 
     culture of instant gratification that demands that if you 
     want something you get it now, and damn the consequences.
       ``We need to teach our kids very early on how skeptical 
     they should be of this type of thing,'' Salisbury said. ``And 
     how dangerous it is to get yourself buried in debt.''
       Reaching young people is the goal for the coming year of 
     the ``Facts on Savings and Investing'' campaign, launched in 
     1998 by a national partnership of government agencies, 
     securities regulators and business, education and consumer 
     groups.
       ``We asked ourselves what our priorities should be, and one 
     thing that has come down loud and clear is the necessity to 
     get many people to start saving early,'' said Salisbury, who 
     is also president and CEO of the Employee Benefit Research 
     Institute in Washington.
       As part of the campaign, the savings council and the 
     institute released a ``Youth & Money'' survey of 560 high 
     school and 440 college students conducted by the research 
     firm Mathew Greenwald & Associates.
       The survey found that most students feel confident they 
     understand financial matters. But their behavior suggests 
     they don't know nearly as much as they think, and that many 
     are falling into bad habits.
       For example, less than half save at least something 
     whenever they receive money or get paid, only 23 percent draw 
     up a monthly budget and stick to it, and 28 percent of those 
     with credit cards roll over debt month after month.
       Perhaps more telling, one-fourth of the students who think 
     they do a good job of managing their money do not think 
     regular savings is a very high priority, when in fact it 
     should be.
       And 25 percent of the students with credit cards who say 
     they do a good job of managing their money roll over debt 
     every month, one of the worst financial habits anybody can 
     have.
       ``One has to presume they are influenced just by watching 
     their parents,'' Salisbury said. ``They end up `learning' 
     things they would be better off not to learn.''
       But if parents can't or won't help, what is the solution? 
     The survey showed an overwhelming majority of students, or 94 
     percent, go first to their parents for financial information 
     and advice. Only 21 percent had taken a financial education 
     course in school, although 62 percent had the chance to do 
     so.
       Among those who did, 41 percent said they began saving, 28 
     percent said they increased their savings, 28 percent said 
     they invested their savings differently, and 19 percent said 
     they developed a budget. The Youth & Money survey, however, 
     questions whether the students actually changed their 
     behavior as opposed to just saying they did.
       Still, Salisbury is among a big majority of Americans--
     count me in, too--who believe financial education should be 
     mandatory in high school. A recent nationwide survey by the 
     National Council on Economic Education found that 96 percent 
     of adults believe basic economics should be a required part 
     of the high school curriculum.
       Currently, 38 of the 50 states have adopted guidelines for 
     teaching economics in high school, but only 16 mandate that 
     schools offer a course and just 13 require that students take 
     the course. Even in those states, more needs to be done, and 
     is being done, to train teachers and incorporate more basic 
     financial literacy concepts in the course.
       ``They all should do it,'' Salisbury said. ``If we require 
     students to take English and to take history to graduate, we 
     should require that they learn basic financial survival 
     skills.''
       If they all did, maybe the students could then educate 
     their parents on the basics of budgeting and handling credit. 
     Then saving and investing would not be a subject that 30 
     percent of parents never discuss with their children, 
     according to the Youth & Money survey.
       ``What's most effective is for students to take what they 
     learn in school about finance and discuss it with their 
     parents,'' said Paul Yakoboski, director of research for the 
     savings council.


             teens able to calculate how savings can add up

       Would you shell out $4,700 for a pair of sneakers? How 
     about $2,800 for a computer game or $300 for a fast-food 
     meal?
       The sums may sound outlandishly high, but that is how much 
     a 13-year-old could save if he invested for retirement, 
     rather than spending $75 for a pair of sneakers, $45 for a 
     computer game and $5 for a fast-food meal, according to ``AIE 
     Savings Calculator,'' which was launched recently on the Web 
     at www.investoreducation.org by the non-profit Alliance for 
     Investor Education.
       The calculator allows a child to enter his or her age, a 
     typical purchase or any dollar amount, and then see how much 
     the money might be worth if it was invested for 10 years, 25 
     years and to the age of retirement. The calculator is based 
     on an 8 percent annual rate of growth, a stock market average 
     in recent years.
                                  ____


                    [From USA Today, Feb. 13, 2001]

                     Debt Smothers Young Americans

                          (By Christine Dugas)

       For many living in a world of easy credit, digging out of 
     debt can become a way of life: 18- to 35-year-olds often live 
     paycheck to paycheck, using credit for restaurant meals and 
     high-tech toys. A news study says the average undergrad now 
     owes $2,748 on credit cards.
       As a freshman at the University of Houston in 1995, 
     Jennifer Massey signed up for a credit card and got a free T-
     shirt. A year later, she had piled up about $20,000 on debt 
     on 14 credit cards.
       Paige Hall, 34, returned from her honeymoon in 1997 to find 
     herself laid off from her

[[Page S4960]]

     job at a mortgage company in Atlanta. She was out of work for 
     4 months. She and her husband, Kevin, soon were trying to 
     figure out how to pay $18,200 in bills from their wedding, 
     honeymoon and furnishings for their new home.
       By the time Mistie Medendorp was 29, she had $10,000 in 
     credit card debt and $12,000 in student loans.
       Like no other generation, today's 18- to 35-year-olds have 
     grown up with a culture of debt--a product of easy credit, a 
     booming economy and expensive lifestyles.
       They often live paycheck to paycheck and use credit cards 
     and loans to finance restaurant meals, high-tech toys and new 
     cars that they couldn't otherwise afford, according to market 
     researchers, debt counselors and consumer advocates.
       ``Lenders are much more willing to take a risk on people 
     under 25 than they were 15 years ago,'' says Nina Prikazsky, 
     a vice president at student loan corporation Nellie Mae. 
     ``They will give out credit cards based on a college 
     student's expected ability to repay the bills.''
       Young people are taking advantage of the offers. A study 
     out today from Nellie Mae shows that the average credit card 
     debt among undergraduate students increased by nearly $1,000 
     in the past two years. On average, they owed $2,748 last 
     year, up from $1,879 in 1998.
       At a time when they could be setting aside money for a down 
     payment on a home, many young people are mortgaging their 
     financial future. Instead of getting a head start on saving 
     for retirement, they are spending years digging themselves 
     out of debt.
       ``I knew for a while that I had a problem. I wouldn't say I 
     was living high on the hog, but when I wanted clothes, I'd 
     buy a new outfit,'' says Medendorp, an Atlanta resident. 
     ``I'd go out to eat and charge it on my cards. There were a 
     bunch of small expenses that added up and got out of 
     control.''
       Massey, Hall and Medendorp each ended up seeking help from 
     a local consumer credit counseling service. Hundreds of 
     thousands more young people like them are turning to credit 
     counseling or bankruptcy because they can no longer juggle 
     their bills.
       In 1999 alone, an estimated 461,000 Americans younger than 
     35 sought protection from their creditors in bankruptcy, up 
     from about 380,000 in 1991, according to Harvard Law School 
     professor Elizabeth Warren, principal researcher in a 
     national survey of debtors who filed for bankruptcy.
       At the Consumer Credit Counseling Service of Greater 
     Denver, more than half of all the clients are 18 to 35 years 
     old, says Darrin Sandoval, director of operations. On 
     average, they have 30% more debt than all other age groups, 
     he says.
       ``By the time they begin to settle into a suburban 
     lifestyle, they are barely able to meet their debt 
     obligations,'' Sandoval says. ``If there is a job loss, an 
     unexpected medical expense or the birth of a child, they 
     supplement their income with credit cards. Soon they are 
     being financially crushed.''


                               Debt heads

       Unlike the baby boom generation--raised by Depression-era 
     parents--young Americans today are often unfazed by the 
     amount of debt they carry.
       ``This generation has lived through a time when everything 
     was on the upswing,'' says J. Walker Smith, president of 
     Yankelovich Partners, a market research firm. ``There is no 
     sense of worry about being over-leveraged. It all seems to 
     work out.''
       Kevin Jackson, a 32-year-old software engineer in Denver, 
     has about $8,000 in credit card debt and a $20,000 home-
     equity loan. He doesn't believe he has a debt problem, though 
     his goal is to reduce his credit card balance to $2,000.
       ``You learn to live with a certain amount of debt,'' he 
     says. ``It's a means to an end. There is something to be said 
     for paying for everything and something to be said for 
     enjoying life, as long as you do it responsibly.''
       Unfortunately, enjoying life can be expensive, especially 
     for many young Americans who feel it is essential to have the 
     latest high-tech products and services, such as a cellphone, 
     pager, voice mail, a computer with a second phone line or a 
     DSL connection, an Internet service provider and a Palm 
     Pilot.
       Jackson just bought a DVD player and a big-screen TV. ``I 
     try to control costs,'' he says. ``I easily could have spent 
     $5,000 on the TV, but instead I paid $2,000 and I got a one-
     year, no-interest deal.''
       Movies, TV shows and advertising only reinforce the idea 
     that young people are entitled to have an affluent lifestyle. 
     ``We're encouraged to overspend,'' says Jason Anthony, 31, 
     co-author of Debt-free by 30, a book he wrote with a friend 
     after they found themselves drowning in debt.
       ``We all see shows like Melrose Place and Beverly Hills 
     90210. It creates tremendous pressure to keep up. I'm one of 
     the few persons who think a recession will be good for my 
     generation. Our expectations are so elevated. In the frenzy 
     to keep up, we've gotten into financial trouble,'' he says.


                         The perils of plastic

       Consumers like Massey, who get bogged down in credit card 
     debt before they even graduate from college, learn the hard 
     way about managing money. Now 24 and married, Massey has a 
     good job in marketing. She has cut up her credit cards and is 
     gradually repaying her debts. However, there have been 
     consequences: She had to explain to her boss that because she 
     no longer has a credit card, she cannot travel for work if it 
     involves renting a car or booking a hotel reservation on her 
     own. She had to tell her husband about her debt problems 
     before they were married.
       ``I lack confidence now,'' Massey says. ``I'm hard on 
     myself because of my mistakes. But I blame the credit card 
     companies and the university for allowing them to promote the 
     cards on campus without educating students about credit.''
       The percentage of undergraduate college students with a 
     credit card jumped from 67% in 1998 to 78% last year, 
     according to the Nellie Mae study. And many of them are 
     filing their wallets with cards. Last year, 32% said they had 
     four or more cards, up from 27% two years earlier.
       Although graduate students have an even bigger appetite for 
     credit, they are starting to show signs of restraint. Their 
     average debt declined slightly from $4,925 in 1998 to $4,776 
     last year, Nellie Mae says.
       Many young people will be saddled with credit card debts 
     for years, experts say. Among all age groups, credit card 
     holders younger than 35 are the least likely to pay their 
     bills in full each month, according to Robert Manning, author 
     of Credit Card Nation.
       Though credit cards and uncontrolled spending are a 
     combustible combination, many young people are pushed to the 
     financial edge by the staggering cost of college. The average 
     annual tuition at a four-year private university jumped to 
     $16,332 last year from $7,207 in 1980, according to the 
     College Board. Between 1991 and 2000, the average student 
     loan burden among households under 35 inreased nearly 142% to 
     $15,700, according to an exclusive analysis of the finances 
     of 18- to 34-year-olds for USA TODAY by Claritas, a market 
     research firm based in San Diego.
       Those who choose to go on and get a graduate degree pay an 
     even higher price. Another Nellie Mae study found that those 
     who borrow for graduate work, and specifically those in 
     expensive professional programs in law and medicine, are 
     likely to have unusually high debt burdens that are not 
     always offset by comparably high salaries.
       Karen Mann didn't need a survey to come to that conclusion. 
     Her husband, Michael, is about to start his career as an 
     orthopedic surgeon after racking up $400,000 in loans during 
     four years of undergraduate school, four years of medical 
     school, one year in an MBA program and a 5-year residency 
     program.
       During his residency and a subsequent fellowship, payments 
     and some of the interest on his student loan have been 
     deferred. Soon they'll have to begin paying them off.
       The interest payment alone is $20,000 a year.
       The Manns are not extravagant, ``I've always saved, and I 
     have a budget,'' says Karen, 31. ``I'd love to buy a house, 
     but there's no way. We haven't been able to afford kids yet. 
     The loans are so awesome that you do get crazy.''


                    paying for everything with cash

       The Manns are not alone in having to defer important goals 
     because of heavy debt loads. Medendorp, a social worker in 
     Decatur, Ga., lives on a budget and is diligently paying her 
     bills with the help of a Consumer Credit Counseling Service 
     debt-management plan. She pays for everything with cash. 
     There are many things she'd like to do but can't afford, such 
     as having laser eye surgery, going back to school and buying 
     a home.
       ``When you get in a tar pit, forget about buying a home,'' 
     author Anthony says. ``Instead of saving for a down payment, 
     you're making credit card payments.''
       At a time when the overall U.S. homeownership rate has 
     risen to historic highs, young Americans are less likely than 
     people their age 10 years ago to buy a home. The 
     homeownership rate for heads of households younger than 35 
     had declined from 41.2% in 1982 to 39.7% in 1999, according 
     to the Census Bureau. And if they own a home, young people 
     tend to make smaller down payments or borrow against what 
     equity they have. As a result, the average amount of equity 
     accumulated by homeowners younger than 35 has shrunk to about 
     $49,200 in 1999, from $57,100 10 years earlier, according to 
     a study from the Consumer Federation of America.
       ``For middle-income Americans, the most important form of 
     private savings is home equity,'' says Stephen Brobeck, 
     executive director of the Consumer Federation of America. 
     ``It's essential to have paid off a mortgage by retirement so 
     that living expenses are lower and one has an asset that can 
     be borrowed on or sold if necessary.''
       By almost every measure, young people are falling behind. 
     Between 1995 and 1998, the median net worth of families rose 
     for all age groups except for the under-35 group. Their 
     median net worth declined from $12,700 to $9,000, according 
     to the Federal Reserve.
       That is not to say that young people today are slackers and 
     deadbeats, as they have sometimes been characterized. Many 
     work hard and often make good incomes. Although they may have 
     a lot of debt, they also are very focused on saving and 
     investing, especially through 401(k)-type retirement 
     accounts. Jackson, for example, contributes the maximum to 
     his 401(k) plan.
       ``They want to protect themselves against future 
     uncertainty,'' Smith says. ``They absolutely don't expect 
     that Social Security will be around for them.''
       But it's hard to save money if you are head over heels in 
     debt. Massey earns $32,000 a

[[Page S4961]]

     year. With her husband, their annual income is more than 
     $100,000. ``But we're still broke trying to pay our bills,'' 
     she says.
                                 ______