June 21, 2017


By Jim Garnett, Institute of Consumer Financial Education (ICFE)

I have been given the honor many times of addressing graduating seniors who soon will exit the sheltered walls of home and school to enter the real world before them. To help prepare them for the myriad of financial situations they will soon encounter, I want to share three simple principles, which if grasped, will make a practical difference in the way these graduates think about money and credit over the next few years.

I call these my “Three Most Important Financial Tips for Graduates.”

1. Accessibility is not affordability.

In the next couple of years, graduating seniors will have access to more credit than they can afford to repay. They desperately need to understand that “just because we have access to buy something, does not mean we can afford to buy it!”

Many people have questioned, “But why would they let me buy that car/house unless they knew I could pay for it?” Most people, as will these graduates, tend to look to the salesperson/lender to advise them what they can afford and reason, “After all, they know more about finances than I do.” High credit scores do not, in themselves, reveal whether people can actually afford to buy what they are looking to buy. Credit scores primarily show that the person pays his/her bills on time. Unfortunately, this is frequently done by using credit to pay on credit.

Graduates need to determine what they can afford to buy before they go shopping, not leave it up to the salesperson to tell them.

2. Wants are not needs.

If we received a surprise gift of $1000, most of us would immediately make a list of the things we need to buy with that gift. Isn’t it interesting that right before we knew about the $1000 gift, those items on our list of needs were just “wants?” The truth of the matter is that once we have the means to buy the thing we want, we tend to see it as a need and no longer as a want.

The best defense I know against seeing wants as needs is a keen appreciation for the things I presently have. Being grateful for what I have keeps me from wanting what I don’t have. It also keeps me from cultivating an entitlement mentality of thinking that I deserve to have more. There is no way to express how important an attitude of gratitude is. It affects every area of our lives every day, including finances.

3. Credit cards are not money.

Credit cards are as convenient as using cash, so it seems like we are spending money when we use them. In reality, we are borrowing money. A credit card transaction is very similar to taking out a loan at a bank, and like a loan, the money we “borrow” must be repaid.

This fact would be much easier for us to realize if we actually went to the bank, filled out a loan application, and used the money to purchase our items. Credit cards eliminate those steps, but nonetheless, leave us owing money and creating debt just like a bank loan would.

This truth will transform the way graduating seniors look at credit cards and realize they are borrowing money instead of spending money.

I hope these three simple truths that I impart into the minds of these young people who are graduating will shape the financial perspectives they have and, consequently, determine the practices they follow on their road to success.

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