Owning a credit card might sound like a key to financial freedom, but without a regular income, will Singaporean youths be enslaved instead

When Joel Yap, a third-year student from Ngee Ann Polytechnic’s (NP) Multimedia & Animation, saw a pair of shoes he liked from Fred Perry, he knew he had to get it. The price: $249.

Payment? Not a problem with an easy swipe of his credit card.

The 20-year-old might not be earning a steady income right now, but getting his hands on his first credit card is possible, thanks to a new credit card targeted at tertiary students and those without income.

The New Card

Citibank is the first to introduce the Citi Clear Card – a credit card that does not require applicants to meet the standard criteria of earning $30,000 per year, in July. Application is open to young adults aged 18 and above. However, those below 21 need parental consent before applying.

Targeting a new clientele, the Citi Clear Card has set the credit limit at $500 to minimise the risk of youths spending too much. Cardholders will have their cards blocked immediately if the minimum monthly payment is not made on time.

While the credit limit is low, the interest rate for this newly launched card is set at 28 percent per annum for outstanding balance. This is 4 percent higher than the standard rate for most credit cards.

With Christmas, the season of spending, drawing near, youths might be more susceptible to the temptation of spending more than they can afford to.

The ‘Swiping’ Sensation

Mr Samson Tanuwidjaja, a personal banker at Citibank, explained, “Credit cards instantly give you more spending power, and instead of just having your allowance to spend, you have an additional amount ‘given’ by the credit card to buy more.”

The launch of the card has caused much debate as to whether youths are able to handle the hefty responsibility of owning a card and spending within their means.

Mr Tanuwidjaja added that getting a credit card isn’t necessarily bad, but first-time cardholders should be clear that they are undertaking a heavy commitment.

“Such a high interest rate serves as an indication for cardholders to control what they spend. At the end of the day, I am sure they are unwilling to pay so much just for interest alone,” he said.

It Isn’t Exactly Priceless

But in Joel’s case, the high interest rate didn’t deter him from owning a credit card. Joel confessed that he doesn’t pay his bills promptly all the time due to the lack of funds, but he reasoned, “I know I might be spending more by paying all the interests, but at least I get what I want immediately.”

He admitted that he borrowed money from his parents first to pay off his bills. Joel isn’t the only youth struggling to maintain his card.

Jamie Lim, 19, a second-year Health Sciences (Nursing) student shared her experience of owning the Citi Clear Card. “When I got my card, I ended up splurging and in 2 weeks, I had already reached the credit limit. My mum was really furious, so I ended up cancelling the card,” she recalled. It was her mother who paid off her bills before terminating her first credit card.

Pan Hong Yi, 20, a third-year Business Studies student and a recent subscriber of the Citi Clear Card, views it differently. He explained that getting a credit card has made him more responsible.

He said, “By getting a card of my own, it’s a step for me to start handling my own finances. I am sure I am capable of handling one as I will be paying my bills with what I earn giving tuition to secondary students.”

Hong Yi was giving tuition even before he applied for the card. He enjoys the free entry to places such as Zouk, Velvet Underground, Phuture and Power House at St James Power Station.

Money and the Extravagant Youth

Tribune did a small survey in NP to find out the monthly allowance of 20 students from different schools. It was found that the average pocket money received by 9 students aged between 18 to 21 is about $300 per month.

With an amount just enough to cover daily expenses and necessities, what are the possibilities of young adults falling into credit card debt?

Mr Bryce Tan, a financial advisor consultant working at Phillip Securities, noted that one of the reasons young credit card users chock up so much debt might be due to the choice of lifestyle.

“Many youths seek an extravagant lifestyle. They expect to dress well, party well, and eat well. All these constitute money. To keep up with a certain lifestyle, they end up spending more than what they can afford,” he said.

The Business Times reported that as of Aug, bankrupts are getting younger. About 4 in 10 of them were aged between 21 to 40, which is 6 percent more in this age group from 2001, mainly due to credit card debt. The report noted that more affluent Singaporeans are falling prey to insolvency.

Some young people are wary of these pitfalls. An example is Eugene Lim, 20, a third-year student from Chemical & Biomolecular Engineering, who’s adamant about not getting a credit card just yet. “I can’t even handle my money in my savings account; I really doubt I can handle having a credit card even though it has a low credit limit.”

Though he admitted the perks offered by credit cards such as getting free entry to the hottest clubs and discounts at restaurants are tempting, he would rather pay using his debit card.

For some parents, allowing their child to have a credit card is a no-go. Mr Robert Tan, a manager, gives $300 each month to his 20-year-old daughter as allowance. He believes in teaching his daughter that money isn’t easy to earn. “She has yet to receive her first paycheck. If she wants a credit card, she will not be able to pay up,” he said.

As Mr Tan put it, “Credit cards are an asset for leverage when managed wisely. It could be a man-made disaster if managed otherwise.”

All About The Citi Clear Card

Application Requirements:

• Must be a Singaporean or Permanent Resident (PR)

• Eligible for 18-years-old and above

(Applicants below 21 require parental consent)

• Must not be an existing primary/basic Citibank Credit Card or Citibank Ready Credit customer

Credit Limit: $500

Annual fee: $28 (First year waived)

Repayment grace period: 25 days from the date of statement of account.

Termination charges: A termination fee equivalent to the annual fee will be charged if you terminate your card account within 12 months from the approval of your card account.

Interest:

Applied rate – 2.34 percent per month

Effective interest rate – 28 percent per annum

Minimum interest charge – $3

Cash advance charges: $10 or 5 percent of amount

drawn, whichever is higher

Late fees:

a) A fixed charge of $40 and

b) Late payment interest charge computed in a manner similar to interest charges at a rate of 0.25 percent per month

Minimum payment: $25 or 1 percent of the current balance, plus the sum of interest charges.

Over limit fee: If the current balance on your card account exceeds your credit limit, an over limit fee of $40 shall be charged to your card account.

Information taken from www.citibank.com.sg