Settling in as a sophomore at the University of Illinois-Chicago last year, Sydney Maier came across an offer she couldn't refuse: free food. At a Subway franchise near campus, Discover Card representatives gave students sandwiches in exchange for filling out a credit card application. Maier signed up and ate a 6-inch veggie sub on the company. A month later, her new Discover card showed up in the mail.
Credit card companies are increasingly reaching out to students like Maier where they are most likely to find them: on college campuses, cellphones, and social networking websites. On Facebook, Chase hosts a Web page that lets students sign up for its credit cards as well as join the Chase group online. Visa has a partnership with Urban Decay, a makeup company aimed at young women, and has advertised through cellphones. Bank of America sets up campus booths, where it gives out T-shirts and other freebies.
"If we can put content in places where people are already spending their time, we can create a different kind of relationship with them," says Tom O'Donnell, a senior vice president at Chase. "We think it will translate to a more loyal and active customer base."
Not everyone is pleased with the youth-oriented marketing. The nonprofit U.S. PIRG has launched a campaign to get schools to adopt a code of principles that would stop credit card companies from offering gifts to students, among other changes.
Naive? "The whole point of [Facebook and on-campus advertising] is to establish a relationship with a naive consumer with a free gift that makes it look like they're your friend and that they're thinking in your best interest," says Robert Manning, author of Credit Card Nation and professor of consumer finance at the Rochester Institute of Technology. In reality, he adds, the practices give students a false sense of security.
Just how much students understand about the debt they are taking on is a point of contention. The American Bankers Association maintains that students are independent adults who rely on credit cards for essential expenses, such as schoolbooks and emergencies, and that assuming they'll take on more debt because of free T-shirts insults their intelligence.
Yet Travis Plunkett, legislative director of the Consumer Federation of America, says young people tend not to fully appreciate credit cards' risks and benefits. "Credit card companies have taken advantage of this lack of financial awareness through aggressive marketing campaigns," he says. Congress is debating whether credit card companies should provide more plain-English disclosures about interest rate hikes, for example.
A survey by student loan company Nellie Mae found that most graduate students wished they had more information about debt reduction strategies. Nearly 60 percent of survey respondents said they wished they had learned more in high school about managing their finances, and over 50 percent said they would have liked to do so in college.
For their part, credit card companies are mixing education with their advertising. Bank of America gives students a financial literacy handbook that explains basic money management skills. The company also sponsors a credit education program through the job site Monster.com. Wells Fargo includes informational brochures in monthly statements and offers new customers credit education lessons. Complete the course, and you get a free movie ticket.
Pullback. But many consumer advocates say these are empty gestures. "They are doing the absolute minimum to say they are doing what's enough," Manning says. In the wake of such criticism, some companies have scaled back their youth-targeted marketing campaigns or at least refrained from talking about their techniques publicly. Discover, for example, says it no longer markets to students on or near campuses.
Meanwhile, universities are stepping up education efforts. The University of North Texas, where 80 percent of students face some kind of debt, opened a Student Money Management Center in 2005. It provides free financial seminars and workshops—some with free food and hours and locales that appeal to students, like 11:30 p.m. in a dorm lounge. At Penn State's Erie campus, students receive credit management training in their freshman seminar program.
Bill Hardekopf, chief executive of the credit card comparison website LowCards.com, says some of the most valuable lessons begin even before students get to campus. "There is an aura or a freedom that a credit card gives a student, and that can very quickly turn into something financially dangerous. It's better to have that happen when the student is under the same roof than when they are in the dorms with their friends," he says.
In fact, market research suggests that students listen to their parents more than they do to advertising, which also holds a lesson for companies. According to research by Susan Menke, senior financial services analyst at Mintel, 84 percent of teens opened an account at their parents' bank. Says Menke: "So [they should] target the parents. Don't target the kids."
Updated: Originally published on 12/24/07. Updated on 1/18/08.