Student Credit Cards
Teach Your Children Well
Although some parents may think their teenagers are too young to become credit cardholders, just being young should not be reason enough to stop parents from teaching their children the basics about credit cards. According to many financial advisers, a solid education on the perils and pitfalls of all things credit-related, including credit cards, should be taught well before young people start applying for their own credit lines and credit card offers.
Here’s some advice (from a student’s perspective) on what would be beneficial for prospective college students and young people in general to know about college student credit cards before they even think about applying for that first credit card on their own:
Start the Education Process Earlier: As a young college student myself, I had no idea about what to watch out for in a credit card. The effects of compounding interest, late payments, credit card balance transfers, credit limits and grace periods were all foreign concepts that I had no clue about. Not having the proper education about credit cards and a lack of fiscal responsibility can be a dangerous formula that can lead to overwhelming debt. And speaking from personal experience, this is where the trouble can start for many of us. It certainly did with me as I racked up a $2,800 credit card bill in my first semester at college. That was a painful and terribly expensive learning experience. So, I recommend that you start the education process and teach your kids as early as possible, erring on the side of sooner rather than later.
Read the Fine Print: Make sure to read and understand the terms and conditions of any credit card offer thoroughly. Young people should become familiar with what the fine print on a credit card application really means; otherwise it can mean trouble down the road. Above all else, make sure you understand what it is that you are signing – a commitment to pay back a financial obligation.
Go Over a Billing Statement with Your Parent(s): I never even saw a credit card billing statement until the end of my first month in college when I first received my very own credit card statement. What a scary site that was! When you receive your billing statements, you should talk openly with your kids about them and explain things such as a credit limit, the cost of annual fees, and the damage that late payments can do to your credit rating. You should help your child understand all of the costs, fees and finance charges associated with owning a credit card.
Understand the Effect of Compounding Interest: There is no more important lesson to learn about the dangers of credit cards than the effect of compounding interest. You should really emphasize the importance of understanding this concept and the dramatic effects that compounding high rates of interest can have, most notably, the dramatic difference between expensive variable APR credit cards and low interest rate credit cards. Looking back, I wish I had had a better understanding of how fast your debts can grow when compounded monthly at 24%! That is an expensive lesson to learn. As a rule, insist that the card balance be paid in full each and every month and that finance charges be avoided at all costs. At worst, make sure to pay off substantially more than just the minimum monthly payment in order to avoid paying excessive finance charges.
Learn the Basics at Home: Well before your child turns 18, you should thoroughly discuss all of the basic personal finance and credit card principles that we’ve outlined. After turning 18, you should help guide them through their first credit card experience - perhaps on a low limit credit card attached to your account or maybe a prepaid debit card where you can conveniently limit the spending limit on the card. When the credit card statements arrive, discuss the billing statement together. Most financial experts suggest that it is more helpful for kids to learn the basics about credit cards while parents can supervise its use, rather than waiting until they leave for college and are on their own for the very first time. It would be wise to send your kids out into the world with some basic understanding and experience of how to handle a credit card on their own.
Do Your Homework: Researching the various credit card offers available in the marketplace is critical. Even for young students who might lack any substantial credit profile, there is still a wide variety of credit cards to choose from. There are reward credit cards, which in general, offer discounts, and rewards that can be redeemed on a wide assortment of merchandise, products and services. Airline miles credit cards are another specific type of reward card that can be used for significant discounts and free travel rewards by accruing “miles” with card purchases. And there are also cash back credit cards that will pay you a cash back rebate on your total purchase activity made on the card. Each of these different types of credit cards has literally dozens of different card products available from the likes of American Express, Citibank, Chase, MasterCard, Visa and Discover Card.
So, make sure that you start the credit card education early before you go away to college. You can learn the basics at home with your parents help. Make it a habit to read the fine print of all financial obligations, including credit card applications. Make sure that you understand what a billing statement looks like by going over one with your parent(s) or trusted advisor. Always do your homework by thoroughly researching all of the card options available to you, and above all, make absolutely sure that you understand the effects of compound interest.