09.16.08 | Credit Card Advice - From One Parent to Another
It’s not the gun, but the person pulling the trigger that’s ultimately guilty of the crime. The same principle applies to credit cards and debt. Who’s really at fault when credit card debt gets out of control? Is it the person swiping the card or the bank that handed it to them? Or perhaps it’s neither. Maybe it all starts at home.
I receive calls and emails from angry parents asking, “Why are you offering credit cards to students? I don’t think that’s very responsible of you.” I must admit, I scratch my head when I hear this, although I do understand that parents want to safeguard their children from life’s many dangers. Being a father myself I certainly want to protect my son from any potential pitfalls, but credit cards are not one of them.
I’ll sit down with Barrett, when he is a little older, and set in motion a plan to ensure he is financially viable, and yes, having a credit card in his name is one way I plan on doing it.
I’ll serve as the co-signer on his credit card so I can monitor the purchases and view the statement activity. I will also have the credit line capped at $500-$1,000 as a precautionary measure. I want him to first learn to be responsible with a small balance before graduating into the world of auto loans or even a mortgage. Your child can gain valuable credit history at an early age and be well on their way to financial freedom with your guidance and watchful eye.
I take my responsibility as a parent seriously. I want the very best for my son as any parent does, which is why when I receive emails claming we are irresponsible for offering credit cards to students I’m bewildered. My Dad took time to explain things to me and ensure I would not get myself into financial trouble. “Pay yourself first” and “spend beneath your means,” were two common threads of wisdom he showered on me. He also eased me along in the world of credit and showed me how to make it work to my advantage.
We send our children to school so they’ll be educated and capable of making intelligent decisions in their lives, but that education begins at home. They look to us for sound advice and guidance. They put their trust in us. I am educated to the facts, and not the negative propaganda surrounding credit cards, which is why my son will be a step ahead of the rest. But it can be lonely being the lead dog. Anyone want to join our team?
So you scratch your head when parents ask why you offer credit cards to students? Oh, please. Unless those students have a job (any job!), it’s just plain irresponsible. (Think mortgage and credit meltdown, currently in progress.) Furthermore, it’s pretty obvious from the “Ozzie and Harriet” conversations Student Loan Guru plans to have about finance, that “Barret” is nowhere near 18. The plan sounds great; I really can’t argue with the details, except that by the time “Barret” is 18 and in college, he won’t need Student Loan Guru to co-sign and he won’t need to show proof of employment to get a credit card. There goes your ability to monitor purchases and ensure the cap is not raised in a few months after “Barret” makes a few purchases and payments. How do I know all this? My son, who just turned 18, is a full time college student with NO INCOME. Without our knowledge, he was granted a credit card from a well-known bank with an $800 limit. He’s stretching his wings and enjoying independence from Mom and Dad. Unfortunately, that also means he thinks he knows more than he does. Suffice it to say that the well-thought out financial literacy conversations proposed by Student Loan Guru are a fantasy at this point. Was I supposed to have given him a credit card at 15, when I still had some influence? That doesn’t seem responsible. Neither is granting credit to people (ANY people, students or not) who can’t demonstrate they can repay the debt that is generated from using the credit card. Credit cards and guns are both tools. The person wielding them is ultimately responsible, but that doesn’t mean we pass either one out on the street corners.
September 17th, 2008 | #
Its better that your son learn a lesson with $800 in debt than graduate without that lesson and start his first real job where he will be showered with cards with limits above $5,000. With no experience or lessons learned about managing credit, maxing those cards out will put him far worse off than those who had an $800 mistake to pay off with a summer job.
I think the point here was managing the risks rather than denying experience with them. Its sort of like the debate about sex education in high school. Is it better to inform kids about the dangers and risks of sex or better to keep their ears virgin and expect the rest of them will follow?
September 18th, 2008 | #
Being a recent grad, I’d have to say that I myself learned the hard way and am paying for it now.. but in a positive way. I now know what APR really means, and I am building my credit score by making my payments on time. I’m a believer that if a student is smart enough in college, they should be smart enough to handle their debts, learn from mistakes, etc.
September 22nd, 2008 | #
HMMMMM. I’ll think about it. Andrew is pretty level headed guy.
October 16th, 2008 | #
One of the ways I learned about “credit” was being given a “refillable” debit card. Even though it works in the opposite direction of a credit card, you still have to manage the account. Once the balance drops down to less than you need, it has the same effect as being over your credit limit, but without the negative impact on future credit.
I would suggest to any parents that are considering teaching their children good money management, they start with a prepaid debit card (you “loan” them the money which is effectively their “credit limit”) that can be used (in most instances) just like a credit card.
As the child/student uses up the allotment, there should be a plan in place for them to “earn” money to refill the card, which is just like paying down the balance.
If they are old enough to work, provide them with a “statement”, and they pay you just like they would pay the credit card company, only the money would be put back onto the card. If you want to add interest on the “loan” (the initial balance), that should be in writing, and if the “payment” isn’t made or is late, funds are deducted from the “payment” and the balance is placed back on the card. (the penalties can be put in a savings account and used for future re-filling by the parent)
All costs of purchasing the card, re-filling it, etc. should be born by the child/student and the parent is the bank. If this is done early enough, the idea of proper money management, and penalties for poor management will be learned without damaging their future credit.
October 17th, 2008 | #