College Kids and Credit Cards

College kids and credit cards are a dangerous mix, especially these days. Children in today’s society are more irresponsible than ever before. I wouldn’t even trust most adults in their early twenties to take $20 down to the store to get milk and bread. Kids just do not have any sense of responsibility or care in the world, and it is mostly due to bad parenting. Families today have both parents working, and typically a solid income that will allow for some extra spending money, and debt in the five digit range – yes I said five digits, as in over $10,000 in debt. What happened to our morals, where is our sense of financial management? These are core issues here at Personal Finance Resources. But let’s discuss some key points that will help your child to be aware of their spending, and have a notion of what the value of a dollar really is.

Teach Them How Debt is Like a Prison

Debt really does enslave the borrower. The Bible says in Proverbs 22:7 “The rich ruleth over the poor, and the borrower is servant to the lender.” What would happen to you if you lost your job? Would your finances crumble? Would you lose your house and car(s)? These are very important points that you can discuss with your children. Let them know how dangerous it is, and how it is like a house of cards that can fall at any moment.

Train Them in Personal Finance Management

Small amounts of debt (like a few hundred dollars on 1 or 2 credit cards) can be very beneficial to a first time borrower, like a college kid. This will help them to establish credit, and later they will be able to get approved for a loan for a house, car if necessary, and other things. Running these small balances allows the credit card company to earn a little interest, while building up the college kid’s credit rating. But be very, very cautious and monitor your credit card account, because all too often we fall into the trap that the credit card companies set, “Go ahead and buy it now, you won’t have to worry about paying for it until much later.”

Set Low Balance Maximums

This will help to curb the bliss notion of using a piece of plastic as a license to go on a shopping spree. If you as a parent are helping your child to build credit, set a balance of maybe $250-500 on your child’s credit card, thus forcing them to come to you for additional funds, and allowing you the opportunity to further teach them about financial responsibility.

Today’s lesson, in a nutshell, is focused around teaching. As a parent, we must teach our children all things, including financial responsibility. The earlier they learn, the better off they will be. Take the time to teach them, setup chores and allowances, make them work for things they want to buy. It will make them place the appropriate value on a dollar, and they will need that training later in life.

One thought on “College Kids and Credit Cards

  1. I would also like to add on your teaching principle that I would advise parents not to co-sign on their children’s credit cards. Two reasons for this. One, it teaches the young adult that he is responsible for this account. It also looks better for the all important credit score. This is not to say that the parent should never co-sign a loan. Sometimes it is a must (student loans for college), but for a credit card with a low limit, I would recommend not co-signing.

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