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October 2006 |
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Few Things Are More Scary Than a College Kid With a Credit Card 
How frightening is this? College students across the country are separated from their parents for the first time at a university. And a lot of these students are armed with a credit card and little knowledge about its potential consequences. You know it's one of the biggest temptations they'll face, but they won't describe it that way. They'll wonder "What's the big deal?" if they even sit through your lectures on avoiding credit card interest and damage to their credit. If you are such a parent, face your fears this Halloween: Are you ready for your adult child to be able to charge at will? Do they need one? Having a credit card is not a requirement to get into college. You don't have to give your child one. However, a credit card does have its advantages. Plastic can be useful in emergencies and for buying things like plane tickets. Charging things and paying the bill the next month teaches financial discipline. And it's a necessary first step to building credit. Problem is, misuse can also demolish a young adult's credit before their financial life even gets started. Every kid is different and it's up to parents to decide if their kid is ready. One telltale sign: Did they have a job in high school and did they show up on time? If they did, they understand the value of a buck and have a track record of discipline. How were their high school grades? Are they prone to shopping at the mall? Make them earn it If your college student is pushing for a credit card, promising to be disciplined, make them demonstrate their good faith. Ask them to find the card they want, read the terms and explain why this is the card for them. (If they choose a card because they get a free T-shirt, you know you've got work to do.) Also, require them to build a detailed budget for the next semester that includes food, housing, books, activity fees, fun, emergencies and more. What role will the card play in their financial life? What can and cannot be charged on the card, etc. Having them make this plan will clarify the reasons for the card, and give you a better idea as to whether they are ready. Consider a starter card One option is to get an additional card (with the student's name on it) for YOUR account. This means you will get the bill and you will owe the money. This is one way to give your child a card for emergencies without the responsibility of their own credit card account. Also, they will be less likely to run up $700 in pizza if the statement will be seen by their folks. Out of your hands? It used to be that a college kid would need a parent to co-sign to get a credit card. Nowadays, getting a credit card is as easy getting a library card. Depending on the parent-child relationship, getting a credit card might not be something some parents can or want to control. If that's the case, at least have "the talk." Explain how foolish it is to pay interest charges long after a purchase has been made. Show them that only paying minimum payments could mean it will take decades to pay down a balance. Remind them that a late payment to a credit card company not only incurs a hefty fee and could raise their interest rate, but severely damages their credit. Remind them that their credit can affect their job search and their ability to buy a home one day. Teaching young adults to handle credit wisely is like teaching them to drive safely. Both are scary and necessary. The encouraging news is that even if college kids make mistakes with credit cards, the mistakes often lead to them understanding credit. Even when they're learning the hard way, they are learning. |
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