Question: Our son is in his first semester of college and so far we have skirted the issue of getting him a credit card. Are we making a mistake by not letting him have his own card?
Answer: Sending kids off to c
ollege isn’t easy. Even though you think it’s time for your child to experience life on their own, you know they’ll still depend on you for some financial support and one of the big issues we see today is whether or not they should have access to credit.
Is it really the right thing to do to turn your teen into a credit-card-carrying “adult” with no strings attached?
Not so long ago, new college students were inundated with credit card applications and could easily apply for and receive a card without their parents even knowing about it. However, this situation changed dramatically after the passage of the Credit Card Accountability, Responsibility and Disclosure Act of 2009. This act made it more difficult for a student under 21 to get a credit card without his parents’ approval.
Let’s face it. The credit card is not the real issue. What you are really worried about is whether or not the credit will be mismanaged by your child. So let’s deal with that consideration. It’s your child’s money maturity that needs to be examined. By working with him, a credit card may actually help him develop money management skills.
Consider these points when deciding whether or not a credit card is appropriate for your college student:
1. Has he had any money management experience?
Perhaps you’ve let him use one of your cards in the past. Maybe he received an allowance or worked at a part-time job during high school. These things teach your child about money-how to get it, save it, and use it as he’s maturing. By the time he’s ready for college, you’ll know how he’s handled money in the past. Use that info when deciding whether he should have his own credit card, and if so, how much oversight will you retain.
2. How does your college student deal with receiving and spending money?
By now, you have a decent idea about how your son approaches the whole money thing. Does he spend every cent right away or carefully save a certain amount? What can you do to encourage a “pay yourself” approach?
3. How are payments for dorm and meal costs arranged with the school?
If your child will be living in a dorm, room and board is usually required to be paid in a lump sum beforehand and this is something you will probably handle. Rather than taking care of this for your child, have them involved in seeing the transaction so they understand how the money flows, even if it is only on paper.
Most colleges now have a meal card arrangement, which means each dorm dweller is provided with a meal card that’s scanned to “pay for” meals. So, no credit card is really necessary. Again, get them involved in the front end transaction to see how the money makes it on to the card in the first place.
4. Consider making your college student an authorized user on your credit card account.
Handling the credit card dilemma by making your child an authorized user on your account gives your student a chance to show his financial chops while you monitor and control the amount available for his spending.A card is issued on your account in the student’s name and your monthly statement will show your child’s purchases.
Designating your college student as an authorized user on your card account is useful because you can set the monthly limit on his card. Some credit-card-issuing institutions even allow you to change your student’s monthly limits as you like.
For example, if you know next semester’s dorm charges are due in December, you can bump up the monthly limit for December to $2,000 or whatever is required. Otherwise, select a lower monthly limit.
5. Consider a secured credit card.
Especially good for college students, a secured credit card account requires a certain amount of collateral be placed on the account, like $300 to $500. This deposit is placed in a low-interest-bearing bond or money market where it will be held up to one year.
If your student shows he can pay monthly credit card bills on time consistently, he’ll eventually receive back the initial deposit. In essence, your kid is rewarded for responsible, consistent money management skills when using a secured credit card.
Take the above points into account when you’re trying to decide whether your college student would do well with a credit card. If you do, you’ll likely arrive at a decision that feels right for you and helps your son develop money management skills.