For the past year I've been helping my daughter with her college search. It's been exciting and frustrating.
Along with the mountain of brochures and info that arrive by mail are credit card offers with her name on them. Now that kinda makes me mad.
The reason it angers me is that a large percentage of college kids have not been taught to properly use credit. There are a few reasons for this. It could be that the parents don't understand it completely, so they pass on really bad habits. It could be that they just ignored the conversation at home.
Here's why I think giving a college student a credit card is a bad idea:
They get hooked. Let's face it: As a consumer, you have a choice to spend or not to spend. So do college students. However, it's a vulnerable time for them. They will need to buy things. That's fine. It's the stuff they don't need -- going to the mall, eating out, buying stuff on iTunes, etc. -- that will get them into trouble. Without proper instruction on how to use credit wisely, many of these kids will get hooked -- by credit card companies that are more than willing to get them on the credit crack as soon as possible.
It makes a mountain of debt. According to U.S. News and World Report, average student loan debt is approaching $30,000! And that number affects 70 percent of all college students. Add to that thousands of dollars of credit card debt and you can see why I'm concerned. It could literally take years to dig out of this situation.
It adds unnecessary stress. Racking up a balance on a credit card will cause some stress, from owing more and working more part-time hours and balancing school and studying. I had credit cards and a car during college, and believe me: I stayed stressed about it. Looking back, I'd rather be broke and debt-free.
What are the alternatives to using a credit card?
Use a debit card. The money is deducted straight out of the account, and no debt is owed. Just make sure they have good habits about recording that debit in their checkbook register. You wouldn't want bounced checks.
Give them an additional credit card on your account. I know I said not to use one. But this is a little different. Most card companies will allow other authorized users on your account. When you do this, you'll have to give them some parameters as to what it is used for. In addition, you'll be able to track their spending online. You'll be able to see every pizza they order.
Go with them to buy stuff for their dorm. Take them on a little shopping excursion to teach them to look for sales and deals. When they come home for a vacation or a visit, that's the time to help them buy the extras. Don't allow them to just get whatever they want. Believe me: They'll justify almost any purchase from Mom and Dad. You buy it so they don't use a credit card.
Take the time to explain to them how credit cards work. You might even show them how much you owe, what the minimum payment is and how interest works. Or you could give them a free subscription to The Diligent Advisor!