Going to college is a major step toward adulthood. For some college students, getting a credit card is another way to gradually become more independent. Before you give your child access to a credit card, have a frank discussion about how to use it responsibly.
How Can Your Student Benefit From Having a Credit Card?
A credit card can give your child greater autonomy and a way to handle emergencies. Managing a credit card can teach your child valuable financial skills, such as budgeting. Getting a credit card in college can help your child begin to build a credit history, which can be helpful later, when it’s time to get an apartment or buy a car.
How Can Having a Credit Card Backfire?
College students frequently get into trouble because of overspending. Small purchases and meals with friends can add up fast.
Many young people don’t understand how credit cards work. They only make the minimum payments, then see their balances quickly balloon thanks to compounding interest. Students sometimes make payments late or don’t make payments at all, then get charged late fees.
Is Your Child Ready for a Credit Card?
Young people mature at different rates. Some kids who have just graduated from high school are mature enough to handle credit responsibly, while others are not. If your child plans ahead, sticks to a budget, and thinks things over before making large purchases, getting a credit card can be a wise move. If, on the other hand, your child tends to act impulsively or give in to peer pressure, having a credit card can put your child (and possibly you) in financial jeopardy.
What Kind of Credit Card Is Right for Your Child?
If your child is ready, he or she can open an individual credit card account. Some credit cards are specifically designed for college students who don’t yet have a credit history. The student will be responsible for charges incurred using the card. Another option is a secured credit card, which will require an initial deposit.
You can also make your child an authorized user on one of your credit cards. If you do that, your child will get a card with his or her name, but you’ll be responsible for purchases your child makes.
How Can You Prepare Your Child to Use a Credit Card Responsibly?
A lack of financial literacy is one of the main sources of credit-related problems. Make sure that your child understands how credit cards work. You can find plenty of online resources that delve into important topics like interest rates, compounding, minimum payments, and credit scores.
Be clear about what kinds of things a credit card may be used for, how much your child is allowed to spend per month, and whether your child is expected to pay the balance in full every month. Consider setting up alerts or logging into the account regularly to monitor your child’s spending.
