Wednesday, August 22, 2018
5 Reasons Why Credit Card Companies Target Young People
I remember when I got my first credit card. The beautiful Brock University in St. Catharine’s Ontario was my home for a year when I was 19. Upon arriving on campus in early September I was greeted by MBNA, an American owned banking company. They were signing people up for their new credit cards which I had very little interest in. What I did want however was the free towel. Being poor and on my own, normal household items were hard to afford for me. I signed up and got my large towel and then over the next year proceeded to rack up that card to the max. Looking back I started to wonder why the companies would go after such bad business, like mine. Today I will describe 5 Reasons Why Credit Card Companies Target Young People. We all probably have an inkling why, but just a heads up, it applies to older people too!
1) Get them early
I mentioned that I found it puzzling that a huge company would go after such bad business like mine, and people like me, when acquiring new clients. Here’s the truth, I am not bad business. I am exactly what they want: A young, dumb and full of bad decisions individual. Only about 2-3% of people actually default on their credit cards. That is surprisingly low considering that the average consumer debt amount per person in our country hovers around 20K. So, what is going on with these people? Are they paying off these cards? Yes and no. People are just floating these balances, hovering between an absurd level to a reasonable level at all times. Basically, companies know that out of sheer fear you will more than likely pay your minimum. Plus, they make the minimums so reasonable that you can afford to pay it, barely. This is why getting them young is so important to their model. They can get you entrenched in the lifestyle of paying off debt. It becomes like food, or hydro, or gasoline, just another monthly bill.
2) Mom and Dad to the rescue
Let’s face it, most parent’s love their children. Most will even bail out their kids should they get into financial troubles. This is why the card delinquencies are so low. You have to figure that the people getting in deep trouble are finding help somewhere. This could include family, home refinancing, consolidation loans or any other number of ways to remain solvent. Here is what is really funny, or sad I mean. Interest rates on credit cards are so high and insolvency rates so low, that even when someone does default on their card, it barely makes a blip on the radar of the company. A credit card with a $5,000 balance and a monthly minimum of $90 will take over 13 years to pay back if you only pay the minimum! Not only that, you will have paid $9,144 in interest over that time! Think about that. They don’t even need Mom and Dad to pay for you! You and everyone like you more than cover any loss they might have.
3) They know we love freebies
I wanted my free towel dammit! Now that might sound stupid, but in my opinion, it is just as stupid as air miles, or cash back, or groceries or any other dumb freebie the company will throw at you. As my main man, Dave Ramsey says, “Credit Card Companies are in the business of making money, and they do it well.” This means that any freebie you might get from them is paid back ten times over. You might say, “Well I don’t carry a balance at the end of the month, so VISA gets nada from me.” Firstly, good for you. Secondly, they still get money from you, believe me. While you might not carry a balance, the stores you shop at pay Credit Card Companies a fee for you to be able to use them there. Places like Wal-Mart don’t like fees, because obviously, it hurts their bottom-line. What do they do to negate that fee? You guessed it, raise prices. So, although you might not carry a balance, you do pay for using that card. Let’s not also forget about the annual fee most of those “Nice” rewards cards carry. Remember this: nothing’s free in this world.
4) They know we are impulsive
Ever put a vacation on a credit card? I know numerous college students that did. When I had that “Amazing” credit card in university I put some of the most stupid things on it. Clothes, booze, dining, it didn’t matter. Let’s deal with the consequences later! Young people are impulsive, envious and vain. Sorry but it’s true. If you don’t believe me, open your Instagram and scroll through. While getting a credit card for emergencies was an alright decision, I guess, it turned out to be for a new shirt or beer with the boys. While older people may be more measured with their credit card spending, younger people aren’t. Credit Card Companies know this so they target young people directly. Ever wonder why the commercials for credit cards never show Grandma in a rocking chair who uses her card once a month to buy tea? They show a Jeep on the beach with young adults playing volleyball for a reason.
5) They know we aren’t that bright
I will start off my last point by saying young people are some of the smartest people I know. I will follow that by saying they stink when it comes to credit. You wouldn’t believe how many people I know with Canadian Tire cards, or HBC cards, or Home Depot cards. These garbage department store cards not only charge you a huge annual fee, they have interest rates that hover in the 20-29% range! That’s criminal in my eyes! So why are we not bright by having these cards? Well, the first mistake you made was getting it to begin with. You probably did it at the checkout counter when they offered you 10% off your purchase if you signed up. Now I am no mathematician, but 10% off my purchase, put on a credit card that has a 23% interest rate. Yep, you can figure that one out. Oddly enough, even when confronted with the startling fact that these cards are pieces of stinky crap, people still keep them. There is absolutely nothing wrong with closing a credit card. Cut it up now! Yet people don’t, and credit card companies know this. People are weirdly loyal to things that they know hurt them, or people that they know hurt them. Just Saying.
Sorry, not sorry, for posting this today, but it had to be done. When I finally got my credit card mess sorted out, I applied for a card. This was to rebuild my credit, but also make security deposits on things like hotels and car rentals. The only question I asked when I applied was this: “What is the card you offer with no annual fee.” I don’t care about rewards, I don’t care about groceries. I know the company will make money off me no matter what, but I will limit that as much as possible. No carrying a balance, no using it for anything out of the ordinary. I don’t know about you, but I don’t like being targeted. I will stand quietly to the side while predatory lenders scoot by me, thank you very much.
“Credit cards are like snakes: Handle ’em long enough, and one will bite you.” – Elizabeth Warren
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