|Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
The Dollar Stretcher website
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Dear Dollar Stretcher,
I just finished reading another article about credit card offers to
college students that likened credit card company representatives to
drug pushers and I agree.
The article suggested that if your child
gets in over his head with a credit card the parent may want to bail
him out once because of the harm it may cause when he needs a job,
car loan or apartment. I can see the practicality of this suggestion
but it would really bother me because I would be doing exactly what
the credit company is counting on when they offer my child a credit
Is there no way to make the credit card companies responsible
for the unreasonable risks they accept when they offer credit to
college students? My son is 15, but I'm already concerned about this
issue. I'm also concerned about our society as a whole.
parents should not feel forced to take on responsibilities they did
not assume for the sake of their children and our children deserve
some time to grow up and learn to deal responsibly with credit.
Surveys show that 80% of
undergraduate students have at least one credit card in their own
name without anyone else being responsible for payment. And almost
every study shows that more students are carrying higher unpaid
balances on their accounts each year. One report from Nelliemae.com
indicates that the average balance in 2000 was over $2,700. That's a
46% increase from their 1998 survey.
High debt levels can force students
to work extra hours to keep up with their bills. That cuts into
study time. And some graduates are finding out that prospective
employers can check credit histories before making a job offer.
They'll avoid people who are having trouble keeping up with their
While I appreciate Nancy's concern
about the banks, they are being held accountable for taking
'unreasonable risks'. When they loan money unreasonably, a portion
of that money isn't paid back. Those losses come directly out of
Are the banks devious in assuming
that some parents will bail out their children? Probably. But it's
really just recognizing the truth. They'd be foolish to ignore
Should they wait for our kids to grow
up first? Perhaps. But if we trust our children to live on their own
shouldn't we expect them to use a credit card wisely? And if we
don't educate them they'll be just as vulnerable at age 25 as they
are at 18. We all know 40 year olds who have credit card trouble.
Plus, the banks aren't alone in
encouraging our kids to get credit. The Consumer Federation of
America (CFA) accuses colleges of contributing to the problem by
allowing card offers to be distributed on campus. In many cases, the
colleges are being compensated by the card issuer.
Back to Nancy's question, there's
probably not much that can be done by law. Sure it would be nice if
banks were more careful about how much money they'd lend to younger
borrowers. But, do we really want a law that sets a maximum credit
limit up to a specific age? Would that be fair to the young person
who's working and using credit responsibly?
Credit card education would be good.
But for a parent the choice seems simple. We can wait for a law or
take control of the situation and begin to train our children to use
credit cards responsibly. With 1.2 million bankruptcies each year
and money problems being the number one cause of divorce sending a
financially uneducated child into adulthood is like sending an
unarmed soldier into battle. They're bound to become a casualty.
Your child will learn a lot by
watching you use your credit wisely. When they're teenagers, let
them help you with your bills. Have them match your receipts to the
statement. Show them what the interest charges are and what
penalties are imposed for late payments, etc.
Most students don't realize that if
they only pay the minimum it will take about 15 years to repay the
money borrowed. And they'll repay $2 for every $1 that they
Deciding when your child should get
their first credit card is an important decision. You'll have
greater control if your child gets their first card while they still
live with you. That way you can review the bills with them and set
limits on card usage. If they begin to carry a balance you can
remind them that paying interest is like burning money. Explain that
every $10 in interest is a pizza that they didn't get to enjoy!
It's important to teach them about
the different types of credit available and the purposes for each.
Long term debts (i.e. tuition) shouldn't be put on credit cards at
15%+ interest. That's what student loans are for. Credit cards
should only be used for things that will be paid for in a very short
time - a month or two.
Finally, and many parents won't like
this, you need to demonstrate responsible credit card use in your
own life. If you sweat out making the minimum payment each month,
don't be surprised if your child does the same.
Nancy can try to shield her son. It's
a natural instinct for all parents. But Junior might do better if
she begins teaching him now. In three years she can lay the
groundwork for a lifetime of responsible credit use.