Money Saving Advice
There's more than one way to get most for your money. For more than 20 years, Gary Foreman has worked to manage money effectively. He's been a Certified Financial Planner and Purchasing Manager. He currently edits The Dollar Stretcher Web site and several newsletters. His mission is to help people "Live Better for Less."
The Dollar Stretcher: Credit Cards and College Students
By Gary Foreman
I just finished reading another article about credit card offers to college
students that likened credit card company representatives to drug pushers
and I agree. The article suggested that if your child gets in over his
head with a credit card the parent may want to bail him out once because of
the harm it may cause when he needs a job, car loan or apartment. I can
see the practicality of this suggestion but it would really bother me
because I would be doing exactly what the credit company is counting on
when they offer my child a credit card.
Is there no way to make the credit card companies responsible for the
unreasonable risks they accept when they offer credit to college students?
My son is 15, but I'm already concerned about this issue. I'm also
concerned about our society as a whole. Other parents should not feel
forced to take on responsibilities they did not assume for the sake of
their children and our children deserve some time to grow up and learn to
deal responsibly with credit.
Answer: College Credit
Surveys show that 80 percent of undergraduate students have at least one credit
card in their own name without anyone else being responsible for payment.
And almost every study shows that more students are carrying higher unpaid
balances on their accounts each year. One report from Nelliemae.com
indicates that the average balance in 2000 was over $2,700. That's a 46%
increase from their 1998 survey.
High debt levels can force students to work extra hours to keep up with
their bills. That cuts into study time. And some graduates are finding out
that prospective employers can check credit histories before making a job
offer. They'll avoid people who are having trouble keeping up with their
While I appreciate Nancy's concern about the banks, they are being held
accountable for taking 'unreasonable risks.' When they loan money
unreasonably, a portion of that money isn't paid back. Those losses come
directly out of profits.
Are the banks devious in assuming that some parents will bail out their
children? Probably. But it's really just recognizing the truth. They'd be
foolish to ignore reality.
Should they wait for our kids to grow up first? Perhaps. But if we trust
our children to live on their own shouldn't we expect them to use a credit
card wisely? And if we don't educate them they'll be just as vulnerable at
age 25 as they are at 18. We all know 40 year olds who have credit card
Plus, the banks aren't alone in encouraging our kids to get credit. The
Consumer Federation of America (CFA) accuses colleges of contributing to
the problem by allowing card offers to be distributed on campus. In many
cases, the colleges are being compensated by the card issuer.
Back to Nancy's question, there's probably not much that can be done by
law. Sure it would be nice if banks were more careful about how much money
they'd lend to younger borrowers. But, do we really want a law that sets a
maximum credit limit up to a specific age? Would that be fair to the young
person who's working and using credit responsibly?
Credit card education would be good. But for a parent the choice seems
simple. We can wait for a law or take control of the situation and begin to
train our children to use credit cards responsibly. With 1.2 million
bankruptcies each year and money problems being the number one cause of
divorce sending a financially uneducated child into adulthood is like
sending an unarmed soldier into battle. They're bound to become a casualty.
Your child will learn a lot by watching you use your credit wisely. When
they're teenagers, let them help you with your bills. Have them match your
receipts to the statement. Show them what the interest charges are and what
penalties are imposed for late payments, etc.
Most students don't realize that if they only pay the minimum it will take
about 15 years to repay the money borrowed. And they'll repay $2 for every
$1 that they borrowed.
Deciding when your child should get their first credit card is an important
decision. You'll have greater control if your child gets their first card
while they still live with you. That way you can review the bills with them
and set limits on card usage. If they begin to carry a balance you can
remind them that paying interest is like burning money. Explain that every
$10 in interest is a pizza that they didn't get to enjoy!
It's important to teach them about the different types of credit available
and the purposes for each. Long term debts (i.e. tuition) shouldn't be put
on credit cards at 15%+ interest. That's what student loans are for. Credit
cards should only be used for things that will be paid for in a very short
time - a month or two.
Finally, and many parents won't like this, you need to demonstrate
responsible credit card use in your own life. If you sweat out making the
minimum payment each month, don't be surprised if your child does the same.
Nancy can try to shield her son. It's a natural instinct for all parents.
But Junior might do better if she begins teaching him now. In three years
she can lay the groundwork for a lifetime of responsible credit use.
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Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher Web site www.stretcher.com. Contact Gary at email@example.com. You'll find hundreds of free articles to save you time and money. Visit today!