Money management is a key part of the college experience. Since only 24 states require students to take personal finance classes in high school, the majority of incoming college freshmen are not prepared to tackle their finances. In fact, 45% of high school seniors said they were not ready to manage their money, according to a recent Capital One survey.
Chances are you've heard stories about some of the complex tactics credit card companies and banks use to make money from their customers: exorbitant interest rates, excessive fees (like a fee for not using your credit card!), unexpectedly lowering credit limits and penalties to name a few.
To ensure that credit card companies and profit hungry lenders don't rip you off, credit unions are here to help.
What is a Credit Union?
A credit union is a friendly, "not-for-profit," financial institution that is comprised of members only. Credit unions offer special deals to its members, unlike "for profit," big-name banks. Any profit made by the credit union is directed back to members via higher interest rates on savings/checking accounts and lower interest rates on credit cards and loans, unlike a commercial bank, which constantly thinks of new ways to increase its revenue for shareholders via methods such as customer fees.
Credit Cards and Credit Unions:
You've probably seen the marketing tents and booths that credit card companies set up on college campuses to try and persuade college students to sign up for credit cards that are littered with high interest rates (sometimes 30%) and outrageous fees. Credit card companies used to give out free lunches and t-shirts to those who applied for a credit card -- that's no longer allowed thanks to new legislation that took effect in February 2010.
But if you see credit card companies on your campus, stay away! Most colleges have their own credit union, which offers credit cards to students at much lower interest rates than the ones available at a marketing booth from a credit card company. As an incoming college student at NYU's Stern School of Business, the credit union I use, the NYU Federal Credit Union, offers a credit card to NYU students with an interest rate of about 7% -- much better than 25% at a regular bank.
Another benefit at credit unions is limited fees. For profit banks generate tens of billions of dollars from charging consumers high annual fees. There is also an additional element of customer service: credit unions are located conveniently on college campuses, which enables students to meet face-to-face with credit union representatives to ensure they understand the terms of their credit card, loan or bank account. Credit unions advocate for the consumer!
Your Money is Safe!
Don't worry, the majority of credit unions insure bank accounts up to $250,000, by the National Credit Union Administration, similar to the Federal Deposit Insurance Corporation (FDIC), which insures bank accounts. And if you have more than $250,000 in savings as a college student, you may not need much help managing money after all!
You're Helping the Economy, Too!
By joining a credit union, you are taking a stand and supporting a consumer-friendly venue. We constantly hear that if banks would simply lend more money, our economy would improve. Now there's some truth to that assertion. If businesses have access to credit in order expand and hire new workers, that's beneficial to our economy. We also hear how the major banks are too scared to lend money, considering the severity of The Great Recession, which was perpetuated in part by easy credit. We need banks to do their homework and lend money to qualified borrowers who have the capacity to pay off the loan. Thankfully, credit unions are both doing their homework and lending money. According to the Credit Union National Association, in 2009, lending to small businesses from banks dropped 18%, but rose 9% from credit unions. This is good news, amid rumors that we're headed for a double-dip recession!
During a very unpredictable economy, it's encouraging to know that some financial institutions, like credit unions, are looking out for consumers. To find the best credit unions in your area, go to creditcardconnection.org.
Scott Gamm will attend NYU's Stern School of Business and is the founder of HelpSaveMyDollars.com. He has appeared on NBC's TODAY, MSNBC, Fox Business Network and ABC.