Is Your Student Thinking About a Credit
Students are back to school and are managing
a much more complicated financial life than when I attended
college in the early 1980s. According to a survey by Student
Monitor, a New Jersey research firm, the typical student has
a college loan, a checking account, a savings account, a credit
card, an ATM card, a debit card, a prepaid phone card, and a
stored-value student identification card. Unfortunately, most
high school and many college students lack experience paying
bills or covering their living expenses.
Credit cards are an increasing problem for students, who are
being deluged with credit card offers—some targeted at
even the very young. My two children are under age 10, but they
have each recently received several credit card solicitations.
The statistics are troubling. One study noted by the U.S. General
Accounting Office found: 64 percent of all college students
have at least one credit card and many have four or more; 25
percent of all students have a credit limit of $5,000 or more
while 24 percent have a credit limit of $1,000 or less; 86 percent
of students pay their own credit card bill, but 41 percent do
not pay their bill in full each month.
Some college campuses discourage credit cards and others, according
to parent complaints, aggressively market them to students.
The UW System, for example, has an uneven record promoting credit
cards. Nationwide, Discover Financial Services estimates 15
percent of college s no longer allow credit card companies to
solicit on campus.
The card vendors respond to parents’ concerns by arguing
they provide students with the opportunity to learn financial
responsibility. Issuers also note they supply educational materials
to students to help them better manage their money.
What should you do to ensure your child does not quickly fall
into high-interest credit card debt? First, decide if a debit
card or a stored-value card is a better option, since they allow
the student to spend up to a preset amount. This prevents spending
from getting out of control. However, be aware that if you lose
either card, you could initially lose the amount in the account.
Second, parents or students should also place lower initial
credit limits on the card so the student has the opportunity
to build up financial experience —a $300 credit limit
is fairly common. For parents who want to play a more active
role in their children’s financial life, credit card issuer
MBNA recently introduced a card that allows parents to set the
credit limit, receive a copy of their child’s bill, and
monitor charges online.
Finally, shop carefully for a credit card. Blue for Students,
an American Express card, charges 8.9-percent interest while
the Discover Card carries a nearly 17.99-percent rate. Bankrate.com
is a good website where you can compare interest rates, monthly
fees, and grace periods on various credit cards.