The Press Newspaper

Toledo, Ohio & Lake Erie

The Press Newspaper

The Press Newspaper

Young, Educated & Broke

Zoe is young, educated and broke. 

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Ryan is too.

Both have jobs, mortgages and a lot of debt.

They are not alone.

Nearly two-thirds of young adult households have incomes under $50,000. One in five struggles with debt hardship. In other words, they spend more than 40 percent of their income to service debt. In fact, the average college-educated young adult has $19,000 in student loan debt and $10,000 to $15,000 in credit card debt.

Many of these graduates will relocate to high-tech centers across our nation and

command sufficient salary to comfortably pay off the debt, but for those who choose to locate here, many will face a challenging future. The median family

income in Ohio is $51,966, according to the U.S. Census Bureau. Furthermore, when adjusted for inflation, family income between 2000 and 2003 declined about eight percent in Oregon, Genoa and Lake Township, according to the Center for Community Solutions, a Cleveland based non-partisan research group.

If college costs escalate at the current pace and wages in Ohio continue to drop, many college graduates will not be able to repay their student loans in 10 years at the current 6.8 percent interest rate.

This is not a crisis yet, but as our reporters write in Young, Educated & Broke, a special 11-story section appearing this week and next, the darkening shadow of debt threatens the future of young adults. Our reporters look at the common reasons young people fall into the debt trap—student loans, credit card debt, bank fees, payday loans, going “upside down” on a car purchase, and the effect a low credit score, garnishment and bankruptcy can have on their futures. They offer tips on how to avoid the debt trap and how to create a budget.

Debt is a personal matter. In these stories you will meet Ryan, a father of two young children. He owes $70,000 in student loans and collection fees and, because of bad luck, naivety and a poor credit rating, has a car payment of $450 a month at 15 per cent interest.

You will meet Zoe and her husband who owe $46,000 for student loans. You will meet Brittany, a student at Bowling Green State University. She wrote four checks totaling $90 which overdrew her account by a few dollars and resulted in $300 in bank and merchant fees, more than half her monthly income.

You will meet Lisa, a full-time mom and student. Her unexpected bills had her juggling six payday loans at one time. Each cost her $15 for every $100 she borrowed.

These Young, Educated & Broke adults, all in their 20s, made choices about how much to borrow, how much to buy on credit, what to drive and where to live. They are responsible for those decisions and must bear the consequences. But, while debt is a personal matter, the impact of this debt on our economy could be dire. Those who spend 40 percent of their income to service debt have less disposable income to purchase new cars or other consumer goods.

These stories paint a disturbing picture, but identifying a societal problem is the first step in solving it. We are not the first to write about this trend. Google “young and broke” and 34.2 million references appear. Nor do we wish to alarm parents or discourage young adults. There is hope. A graduate of a four-year college will earn in a lifetime an estimated $600,000 more than a high school graduate while a two-year graduate will earn $250,000 more. So, the “Young, Educated & Broke” of today have the potential to pay off large debt.

We hope, however, that by educating you about these trends, our young adults will avoid the debt trap and become smarter consumers.

More stories from "Young, Educated and Broke":

"Upside-down" autos a major problem for buyers

Bankruptcy not the best answer for mounting debt

Pay Day loans can prove to be financial traps

Debt becoming hardship for the young and educated

Are credit cards a necessary evil for today's undergrads?

Grads say debt worry is a constant in their lives

Overdraft, ATM, other bank fees take a bite out of account balances

For some in debt, garnishment follows graduation

It was just an oversight – a mistake that could be made by anybody.

In a hurry and distracted after making a purchase, Brittany forgot to record a check for college supplies in her checkbook register. This one simple oversight ended up costing her more than half her monthly income plus the hassles and embarrassment of having to deal with bounced checks.

Like many of her peers, Brittany (whose name has been changed to protect her privacy) opened her first checking account before heading off to college.

“Before I went to the bank, my dad gave me some questions to ask, so by the time I was done, I felt I had a pretty good understanding about how the account worked,” said the Bowling Green State University student, who is now 21.

She chose a basic “totally free” checking account, which didn’t have overdraft protection, though it was available for an extra monthly fee, or if she had upgraded to a different account, she said.

“I never used a debit card, I got cash out at the ATM only about once a week, and I was very careful, almost anal about writing down all the checks I wrote in the check register,” she said, adding that she balanced her account every month.

Brittany’s attention to detail paid off until she made a common, but costly error.

“I had written a check for about $200 for a book or something I needed for my classes, and I just forgot to write it down,” she said.

In the mean time, she did a little grocery shopping and stopped to pick up some items for Halloween.

“It was the weekend, and although I didn’t spend much money, I did write four or five small checks totaling about $90,” she said.

Three days later, she got a letter from her bank notifying her that her account was overdrawn.

“I couldn’t believe it,” she said. “With each check that came in, the bank charged me a $36 fee, plus $6 per check per day that the account was overdrawn.

“Plus, some of the merchants charged me a fee for bouncing a check,” she said.

All in all, her oversight cost her about $300.

“Besides the money, there’s an embarrassment that comes with bouncing a check,” she said.  “At one point, I actually cried because I felt so bad.

“You go into a place that you go all the time and they say, `Hey, your check bounced,’” she said. “Or, you have to go to the service desk at the store to pay the fee – it’s really embarrassing.”

Fees on the rise

A recent study conducted by Bankrate.com, the Web’s leading aggregator of financial rate information, shows significant trends in bounced check fees, ATM surcharges and interest-bearing checking accounts.

Bankrate’s Spring 2006 Checking Study shows:

• The average bounced check fee is $27.04. Many banks use a tiered structure so fees can add up, and quickly. For example, many large banks charge $25 for a bounced check. With the fee increasing to $30 for each subsequent bounced check, a bank customer could lose $115 in fees for four bounced checks.

• ATM surcharges hit a new high and are more prevalent than ever. The fee banks charge to non-accountholders now averages $1.60, with 98 percent of banks owning ATMs charging a fee.

• The average balance requirement on interest checking accounts hit a new high of $2,465. With interest checking yields remaining low, customers are not getting much in return.

Know what to ask

According to Kris Downey, marketing director of Bay Area Credit Union in Oregon, “We find that kids do not want to write checks, want a debit card, don’t use a check register, rely heavily on ATMs and online banking and have no interest in ‘balancing’ their checkbooks.” It’s important for those opening an account to ask questions of account representatives and have an understanding of what kind of account best suits their needs.

Beth Carpenter, executive vice president of service and administration at TPS Credit Union, Inc., offers this advice for students and for bank customers of all ages.

“The reality is, it boils down to, don’t write a check if you don’t have the money in your account,” she said. “Today, checks clear quickly, and you might not have the `float time’ that you might have had at one time.

“With that said, we all know that there are times that we’re pinched. We are all guilty of juggling. So then, you have to educate yourself on how things work,” she said. “You should make sure you have a cushion, and ask if your bank offers overdraft protection and how it works.”

Many financial institutions offer overdraft-protection, or bounce coverage plans so that your checks don’t bounce and your ATM and debit card transactions go through. With these plans, you’ll pay an overdraft fee to the bank for each item, but you’ll save yourself embarrassment, the merchant’s returned-check fee and will stay in good standing with the people you do business with.

But the “overdraft protection” safety net comes at a cost. Plans vary by institution and even by account, but most banks charge a flat fee (often $20 to $30) for each item they cover. And many set a dollar limit on the total amount your account may be overdrawn at any one time.

For example, the bank might cover overdrafts up to a total of $300, including all the fees. In addition, some banks charge a daily fee--say $5 a day--for every day your account is overdrawn.

Financial institutions may provide other ways of covering overdrafts that may be less expensive, including linking your checking account to a savings account or credit card you have with the bank.

Common sense?

The Better Business Bureau reminds checking account holders of all ages to be diligent about recording every deposit and withdrawal, balancing the account each month, and using debit and ATM cards responsibly. Remember, the account balance shown on the ATM receipt may not include outstanding checks or other debits.

Also, remember to keep account information (paper statements, passwords, ATM cards) in a safe, secure location. BBB surveys show that identity theft victims are more likely to be robbed by people they know (family members, friends, roommates), than a stranger. Do not leave account statements or computer passwords strewn about where roommates or visitors can see them.

And when you check your e-mail, take a few minutes to monitor your financial accounts (checking, saving, credit) online too. That’s a quick way to determine if someone has stolen a password, Social Security number or account number is accessing your funds, and it’s the best way to keep a handle on your financial status.

For college graduates lucky enough to find a job but nevertheless falling behind on their student loan payments, another component of the Higher Education Act may enter their lives – wage garnishment.

The U.S. Department of Education can issue withholding orders for up to 15 percent of the disposable pay of borrowers who owe money on student loans. The withholding is authorized by the Debt Collection Improvement Act of 1996.

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Giving money to people along road

Do you feel compelled to give money to people holding signs along the road asking for money?
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