October 2002
Is Your Student Thinking About a Credit Card?

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.