When children start university, their parents might have bought them a bar fridge, a laptop, and probably some new clothes as well. Many of these freshmen come to university armed with their very first credit card too, and although there are several risks involved with giving a young adult the responsibility of handling their own credit card, there are some advantages too. So, what are the pros and cons of student credit cards?
There are numerous benefits to taking out a credit card as a student, such as:
- Convenience in case of emergencies
- It’s a safer way to pay for things instead of carrying around cash
- More secure online shopping
- Helps to develop money-management skills
- Helps to start building a good credit history for later in life, when loans will be needed for things like cars and homes
One plus for parents, is that if they’ve co-signed on the card, they should get a statement at the end of every month too, so they will be able to monitor their child’s spending habits during the month. This will allow them an opportunity to see if their money is being spent irresponsibly, and to help offer guidance through their children’s first few years of financial independence.
Of course, with all forms of lending there is a downside as well. One of the biggest downsides of students having their own card is that the majority of young people graduate with a large student loan debt. This already heavy burden is increased significantly when there is also money owing on a credit card.
These sizable debts can also prevent the student from learning to save while they’re still at school, which can have an impact on their financial situation for years to come. Bills that aren’t paid on time can cause a lot of damage to a student’s credit score, and the same applies too, to parents who have co-signed for the card.
Some credit cards have high annual fees and interest rates, so it’s important to compare online credit cards to make sure you get a good deal. Taking the time to find a good offer could save you a significant amount of money down the line.
How Parents Can Help
Parents give their children credit cards when they start university, mainly for the convenience that the card provides. However, students need to be taught how to use their cards responsibly, to avoid overspending and building up unwanted debt. There are several things parents can do to help their children improve their money management skills.
Set down the rules and regulations and stick to them. By letting them know what the card should be used for you can establish the ground rules. If the rules are broken, the card can easily be taken away.
Limit the card’s usage to only school expenses such as books and so forth, rather than entertainment, and let your child know too, that you expect them to use it to pay monthly bills regularly.
Talk to your child about using the card wisely to avoid high interest rates by paying off the balance in full each month. Make them aware of identity theft and the things to be aware of when using the card online and in stores.
Students must understand how important it is to only use the card to charge for amounts that they can afford to pay, and that the key to responsible credit management is to keep their charges to at least 30% lower than their credit limit.
Students must learn that using their credit card wisely while they’re still in school will help build strong credit record. This will open many doors for them in the future, such as when they need to borrow money to buy their first house or car, making their financial future much more straightforward.