College Students Are Credit Card Dunces

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Don't let your child wear a dunce cap. Instead, teach him financial literacy.

Even after lawmakers made it harder for banks to give college kids credit cards, credit card debt is still a big problem on U.S. campuses. A new study pinpoints the simple, frustrating reason why: Students don’t know anything about the fundamentals of credit card use. “It is clear the status quo of financial literacy is a failure,” they write. So, just how dumb are kids these days?

Although 70% of undergrads and 96% of graduate students have credit cards, fewer than 10% pay their balance in full every month. Only 15% have any idea how much their interest rate is, and fewer than one in 10 students know their interest rate, late fee and over-limit fee amounts.

We get it — nobody likes squinting to read acres of fine print, but this is a pretty pathetic showing, especially given that 92% of these students were business majors. “There is no way to describe these results as a success in education of financial literacy,” researchers wrote.

(MORE: 60 and Still Not Out of Student Loan Debt: Seniors Facing $36 Billion in College Loans)

Revolving a boatload of debt without having any idea of how much you’re paying for that privilege might seem like just another instance of collegiate flakiness, but that’s no excuse, says Gail Cunningham, spokeswoman at the National Foundation for Credit Counseling. “By virtue of the fact that they’re in college, it indicates that they have the ability to learn these basic building blocks of financial success but are choosing not to.”

The study, “Financial Literacy and Credit Cards: A Multi Campus Survey,” was published in the April issue of the International Journal of Business and Social Science. It included 725 students at five different schools. When researchers broke the group down by demographics, they found that students who had taken either business law or ethics classes were more knowledgeable about credit card costs. (Researchers speculated that the ethics students may have been exposed to more news about the financial crisis that included discussion of credit cards.)

“These results should serve as a wakeup call for both our college students and our college outreach efforts into the community to train people about the costs of credit,” the study’s authors write. They point out that if college students, who ostensibly have enough schooling under their belt to read a credit card statement, are still clueless about the basics of such a fundamental product, there’s probably even less financial literacy among less-educated Americans.

(MORE: Back-to-School Special: 9 Credit-Card Tips For Students)

The effects of this knowledge gap linger long past the college years. A recent survey conducted by the National Foundation for Credit Counseling asked nearly 1,200 people in what aspect of personal finance they could use the most help. A majority — 56% — selected “improving my credit score,” while only 5% chose “understanding my credit report.” Most didn’t grasp that understanding your credit report and what’s in it is the first, biggest and most important step toward improving your credit score.

Cunningham says college students — especially those business majors — who manage to earn a four-year degree without knowing even the most rudimentary facts about their finances should look in the mirror when they’re wondering why their credit is crummy well into adulthood. “The financial pain they’re causing is evidently self-inflicted,” she says.

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