Going to university comes with new financial freedoms. And for many students, it means their first foray into the world of credit and debt.
There is no shortage of credit card offers on and off campus, from cash back cards to those specifically aimed at students. According to a survey of Experian College graduates in April, 58% of prospective graduates surveyed said they had a credit card, while 30% said they had credit card debt, with an average balance of $ 2,573. .
Many people argue that having a credit card helps students learn to manage debt and the responsibility of paying their bills on time. And, for some parents, credit cards provide a convenient way for their kids to purchase things while they’re in school without having to reach out every time they need funds for a purchase.
But others say giving a student with little personal finance knowledge a credit card is a recipe for debt disaster. This is especially true given that many graduates are already leaving college overburdened with student loans, critics say.
YES: this is the best time to learn to manage finances
By Beverly Harzog
Credit cards have a dark side if used irresponsibly. But responsible use during college – with parental supervision and training – can help give young adults a financial head start in life after graduation.
On the one hand, letting your child have a card means you have the opportunity to teach them the skills they need to use it. Once your child graduates, you will lose influence over their decisions. It’s the natural order of things. That is why you should take the opportunity to offer financial advice and help secure a good financial future. When your child becomes a confident and responsible credit user, paying their credit card bill on time and avoiding debt becomes a lifelong habit.
An early start
There are other advantages to getting started on the credit path early on. Learning to deal with credit errors during college is much safer – and usually cheaper – than after graduation, when graduates may be faced with student debt and may be tempted to take out debt. cards with higher credit limits. It is important that they receive a lesson on compound interest and how to control their spending before it happens.
Getting a card in college is also an opportunity to teach kids how the FICO score relates to their credit habits. Good habits lead to a good score. If they make a mistake, they will also learn the consequences. And, since increasing your FICO score takes time, getting started early is crucial.
This leads to a larger point: the transition to adulthood is smoother and less expensive when the graduate already has a good credit history in place. Good credit leads to lower deposits for an apartment and for the activation of utilities. It also translates into lower health and auto insurance premiums. And it helps graduates land that first job, as more employers review credit histories.
Another reason for a credit card? Students often need to purchase textbooks and other school-related items online. Credit cards offer better protections for consumers and, in many cases, zero liability for fraud.
Likewise, you might not be there every time your child calls or texts you from college. There may be unforeseen expenses, such as car repairs or a medical crisis. Having a credit card ensures that your child is financially covered and can get help when needed.
Involvement is crucial
I totally agree with the reviews about the risks of using credit cards. I made a lot of mistakes myself as a young adult because I had no training in how to use credit. I also agree that colleges pushing cards on students is a problem and needs to be controlled.
Everything I say is based on parental involvement. Once your kids have cards, the real work begins. You cannot take a hands-off approach. Emphasize that credit is dangerous if used irresponsibly. But also teach them that good credit is a financial tool that will help them save money throughout their lives. Empowerment is the answer, not avoidance.
Ms. Harzog is a consumer credit expert and most recently author of The Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free. She can be contacted at [email protected]
NO: Too many people graduate with high debt and bad credit
By Robert D. Manning
As a credit card researcher for over 20 years, I have seen the enormous toll that consumer debt takes on students.
They often make impulse purchases without understanding the long-term consequences: alcohol, expensive gifts, lavish vacations, casino games, expensive electronics, and much more.
A persistent problem
Then, after graduation, they learn the reality of their indulgence. They have to make big sacrifices to pay off credit card debt and student loans every month. They struggle with low credit scores that can prevent them from renting an apartment, getting loans for college education, or qualifying for a mortgage. They can even lose their jobs if an employer is concerned about their debt and payment history.
Parents, too, can suffer the consequences. Credit card companies have moved from requiring parental co-signatures, to granting accounts directly to students under the age of 21, to suing parents for unpaid balances.
Some would say that denying student credit cards goes too far. According to the argument, parents can supervise their children’s card use and teach them financial responsibility that will help them build a good credit report and serve them for the rest of their lives.
Yet when children enter college, parents have effectively relinquished control of their day-to-day financial decisions. College students are more heavily influenced by their peers and mass marketing campaigns, according to my research.
I also found that students learned tips to keep parents in the dark about their spending. On the one hand, they use credit cards co-signed by parents for approved purchases, and then get other credit cards for purchases that they don’t want their parents to know about.
There is also the bad influence of the colleges themselves to consider. Before the 2007-08 financial crisis, credit cards were given to students like candy. Schools regularly signed exclusive multi-million dollar marketing agreements and were encouraged to promote card use without disclosing terms and costs. The dearth of financial education classes and workshops on campus has created a perfect storm for competitive consumption.
Federal regulations and advances in payment systems (including debit and prepaid cards) have improved student use of credit. But colleges continue to push cards, and their misuse remains a serious problem, especially in the absence of effective financial education.
Keep it simple
Beyond that, there are plenty of opportunities for a student to build a good financial record without a credit card. On the one hand, students could simply pay their expenses in cash. Students are much more likely to develop good habits by depleting their checking and savings accounts and then learning to budget their limited financial resources. Ultimately, it’s about learning practical skills that help students make prudent decisions. After all, isn’t that the essence of college?
Dr Manning, author of “Credit Card Nation” and “Living With Debt”, is a Senior Fellow at the Institute for Higher Education Law and Governance at the University of Houston Law School. He can be contacted at [email protected]
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