In the midst of all the packing, parents of incoming college students are stopping to wonder whether they should send their kids to school armed with credit cards – if so, which one, and if not, then what’s the alternative?
That’s right – tuition bills aren’t the only thing parents need to think about. How will your dorm-dweller pay for all those late-night study session pizzas, thumb drives, and other student life necessities, once Mom and Dad aren’t around to slip them a $20 every morning?
If you’re funding your child’s education and they aren’t working a part-time job, you need to decide not only how much allowance to give them, but how to give it. Even if your child is working and making her own money, is it a good idea for her to get a credit card and risk the temptation of spending more than she can afford?
A Well-Rounded Education
Learning to use credit is part of learning about life, says Michael Germanovsky, Editor-in-chief of Credit-Land.com and founder of the Student Credit Card Education Initiative. “Parents may have an instinct to protect their children from what they see as the big bad world of credit, but it’s important for students to learn how to use credit wisely so they don’t get into trouble later in life. The sooner kids start learning about responsible credit use, the better.”
How do parents make sure their kids use credit cards responsibly, when they can’t even get them to pick up their socks? The key is to pick the right card, know your child, and check in with them frequently. Parents will have to co-sign any credit card application, since the Credit CARD Act made it harder for people under 21 to get a credit card on their own. That’s a good thing for parents who want to keep tabs on their child’s spending.
Prepaid, Debit, or Credit?
There are three types of cards that parents can consider for their kids – here’s a quick rundown of all three:
· Prepaid – With a prepaid card, parents can load money onto the card and the student will be able to spend it until it’s gone. The advantage is that there’s no way for a kid to get into debt this way. That makes them a good choice for parents who truly don’t think their kids are ready to handle a credit card.
The disadvantage? You kids won’t necessarily learn anything about how to manage credit, since they don’t have to make payments on the card. These cards are essentially plastic replacements for cash – and just like with cash, your student may call you up to ask you to refill the card when it’s empty.
· Debit – If your child has a job and a bank account, then a debit card can be a good option, since it gives them access to their own money. Giving them a debit card linked to your account, however is never a good idea. Debit cards need to be handled securely, since the money comes directly out of your account instantly. Bottom line? Parent’s Debit cards usually aren’t a great choice for college kids.
· Credit – There are lots of student credit cards on the market, so there will be no shortage to choose from if you go this route. One thing to be aware of? APRs on student cards are on the rise, with an average APR of 16.3 percent due to lenders’ reluctance to extend credit to people with limited credit history. Since most college kids have no credit history at all, this means they are subject to higher rates.
This is a good reason for parents to make sure that students pay off their balance in full every month, never carrying a balance or paying interest. Germanovsky advises parents to set up email and text reminders for their kids, so they don’t miss a payment due date. “Kids these days are glued to their smartphones, so if a text or an email alert pops up, they won’t miss it. Learning to make on-time payments is the most important first step in credit card education. Help your child out by making sure they get a reminder to pay.”
Great Student Cards
Discover Student and the Capital One Journey Student Rewards both offer cash back rewards, so students can not only learn about responsible credit card use, they can get some rewards back while they’re at it. Getting a student credit card and using it wisely will help build a strong credit history that will help students long past their college days.