Spring 2005FDIC Consumer News
2
SPECIAL GUIDE FOR YOUNG ADULTS
Everybody makes mistakes
with their money. The
important thing is to keep
them to a minimum. And
one of the best ways to
accomplish that is to learn
from the mistakes of
others. Here is our list of
the top mistakes young
people (and even many
not-so-young people)
make with their money,
and what you can do to
avoid these mistakes in the
first place.
Buying items you don’t
need...and paying extra
for them in interest.
Every time you have an
urge to do a little “impulse
buying” and you use your
credit card but you don’t
pay in full by the due date,
you could be paying
interest on that purchase
for months or years to
come. Spending money
for something you really
don’t need can be a big
waste of your money. But
you can make the matter
worse, a lot worse, by
putting the purchase on a
credit card and paying
monthly interest charges.
Research major purchases
and comparison shop
before you buy. Ask
yourself if you really need
the item. Even better, wait
a day or two, or just a few
hours, to think things over
rather than making a quick
and costly decision you
may come to regret.
There are good reasons to
pay for major purchases
with a credit card, such as
extra protections if you
have problems with the
items. But if you charge a
purchase with a credit card
instead of paying by cash,
check or debit card (which
automatically deducts the
money from your bank
account), be smart about
how you repay. For
example, take advantage of
offers of “zero-percent
interest” on credit card
purchases for a certain
number of months (but
understand when and how
interest charges could
begin).
And, pay the entire
balance on your credit
card or as much as you can
to avoid or minimize
interest charges, which can
add up significantly.
“If you pay only the
minimum amount due on
your credit card, you may
end up paying more in
interest charges than what
the item cost you to begin
with,” said Janet Kincaid,
FDIC Senior Consumer
Affairs Officer. Example: If
you pay only the
minimum payment due on
a $1,000 computer, let’s
say it’s about $20 a month,
your total cost at an
Annual Percentage Rate of
more than 18 percent can
be close to $3,000, and it
will take you nearly 19
years to pay it off.
Getting too deeply in
debt. Being able to
borrow allows us to buy
clothes or computers, take
a vacation or purchase a
home or a car. But taking
on too much debt can be a
problem, and each year
millions of adults of all
ages find themselves
struggling to pay their
loans, credit cards and
other bills.
Learn to be a good money
manager by following the
basic strategies outlined in
this special report. Also
recognize the warning
signs of a serious debt
problem. These may
include borrowing money
to make payments on
loans you already have,
deliberately paying bills
late, and putting off doctor
visits or other important
activities because you
think you don’t have
enough money.
If you believe you’re
experiencing debt
overload, take corrective
measures. For example, try
to pay off your highest
interest-rate loans (usually
your credit cards) as soon
as possible, even if you
have higher balances on
other loans. For new
purchases, instead of using
your credit card, try
paying with cash, a check
or a debit card.
“There are also reliable
credit counselors you can
turn to for help at little or
no cost,” added Rita Wiles
Ross, an FDIC attorney.
“Unfortunately, you also
need to be aware that
there are scams
masquerading as ‘credit
repair clinics’ and other
companies, such as ‘debt
consolidators,’ that may
charge big fees for
unfulfilled promises or
services you can perform
on your own.”
If at First You
Don’t Succeed...
Common Mistakes Young Adults Make with Money
and How to Avoid Them
A Message to Readers
The Federal Deposit Insurance Corporation has been
publishing FDIC Consumer News quarterly since 1993 to
help people be savvier about and safer with their money.
Dealing with personal finances can be overwhelming for
anyone, but especially for people just beginning to manage
money on their own. That’s why we’ve published this special
edition. Our goal is to help young adults — including those
just starting a career or a family and others still in school —
take control of their finances.
2
SPECIAL GUIDE FOR YOUNG ADULTS
Everybody makes mistakes
with their money. The
important thing is to keep
them to a minimum. And
one of the best ways to
accomplish that is to learn
from the mistakes of
others. Here is our list of
the top mistakes young
people (and even many
not-so-young people)
make with their money,
and what you can do to
avoid these mistakes in the
first place.
Buying items you don’t
need...and paying extra
for them in interest.
Every time you have an
urge to do a little “impulse
buying” and you use your
credit card but you don’t
pay in full by the due date,
you could be paying
interest on that purchase
for months or years to
come. Spending money
for something you really
don’t need can be a big
waste of your money. But
you can make the matter
worse, a lot worse, by
putting the purchase on a
credit card and paying
monthly interest charges.
Research major purchases
and comparison shop
before you buy. Ask
yourself if you really need
the item. Even better, wait
a day or two, or just a few
hours, to think things over
rather than making a quick
and costly decision you
may come to regret.
There are good reasons to
pay for major purchases
with a credit card, such as
extra protections if you
have problems with the
items. But if you charge a
purchase with a credit card
instead of paying by cash,
check or debit card (which
automatically deducts the
money from your bank
account), be smart about
how you repay. For
example, take advantage of
offers of “zero-percent
interest” on credit card
purchases for a certain
number of months (but
understand when and how
interest charges could
begin).
And, pay the entire
balance on your credit
card or as much as you can
to avoid or minimize
interest charges, which can
add up significantly.
“If you pay only the
minimum amount due on
your credit card, you may
end up paying more in
interest charges than what
the item cost you to begin
with,” said Janet Kincaid,
FDIC Senior Consumer
Affairs Officer. Example: If
you pay only the
minimum payment due on
a $1,000 computer, let’s
say it’s about $20 a month,
your total cost at an
Annual Percentage Rate of
more than 18 percent can
be close to $3,000, and it
will take you nearly 19
years to pay it off.
Getting too deeply in
debt. Being able to
borrow allows us to buy
clothes or computers, take
a vacation or purchase a
home or a car. But taking
on too much debt can be a
problem, and each year
millions of adults of all
ages find themselves
struggling to pay their
loans, credit cards and
other bills.
Learn to be a good money
manager by following the
basic strategies outlined in
this special report. Also
recognize the warning
signs of a serious debt
problem. These may
include borrowing money
to make payments on
loans you already have,
deliberately paying bills
late, and putting off doctor
visits or other important
activities because you
think you don’t have
enough money.
If you believe you’re
experiencing debt
overload, take corrective
measures. For example, try
to pay off your highest
interest-rate loans (usually
your credit cards) as soon
as possible, even if you
have higher balances on
other loans. For new
purchases, instead of using
your credit card, try
paying with cash, a check
or a debit card.
“There are also reliable
credit counselors you can
turn to for help at little or
no cost,” added Rita Wiles
Ross, an FDIC attorney.
“Unfortunately, you also
need to be aware that
there are scams
masquerading as ‘credit
repair clinics’ and other
companies, such as ‘debt
consolidators,’ that may
charge big fees for
unfulfilled promises or
services you can perform
on your own.”
If at First You
Don’t Succeed...
Common Mistakes Young Adults Make with Money
and How to Avoid Them
A Message to Readers
The Federal Deposit Insurance Corporation has been
publishing FDIC Consumer News quarterly since 1993 to
help people be savvier about and safer with their money.
Dealing with personal finances can be overwhelming for
anyone, but especially for people just beginning to manage
money on their own. That’s why we’ve published this special
edition. Our goal is to help young adults — including those
just starting a career or a family and others still in school —
take control of their finances.