What College-Bound Students Should Know About Credit Card Offers
Parents can help their teens make smart decisions about credit card offers and provide an opportunity for them to learn about successful money management long before they go off to college. Creating an environment where teens can communicate with their parents about money is the best way for them to learn how to manage their money successfully. For example, teens can learn how to manage the money they receive through a part time job, allowance or gift. Parents can provide some input and talk to their children about how well they may be managing or mismanaging their money.
To help teenagers make the transition from high school to college, parents can talk with them about two important issues that will be extremely helpful to them by the time they get to college. First, they can help them understand the concept of budgeting. Establishing a budget or spending plan is essential for helping students understand their income and expenses while attending a college or university. An easy way for students to establish a budget is by using a student budget calculator, which allows them to input their income and expenses for an eight-month school year. If their expenses are greater than their income, they can make some adjustments - cut down on discretionary spending, for example.
Another thing teenagers should learn before going off to college is how to be smart about using student credit cards. College bound students receive many credit card offers and the lure of easy credit among college students leaves many of them strapped with increasingly higher debt loads. One explanation is that many colleges and universities have lucrative financial arrangements with banks and credit card companies. According to a study by Nellie Mae, a prominent provider of student loans, 56% of undergraduates reported that a direct mail solicitation was the primary source for selecting a student credit card, which they obtained their freshman year.
Given the overwhelming number of credit card offers between academia and financial institutions, how do parents protect their children and help them become smart about obtaining and using credit cards? If parents want their children to know how to manage credit card debt after they go off to college, they should provide an opportunity for them to learn how to manage credit right now. Long before students go off to college, they should have a checking account (with no fees) for depositing their allowance, monetary gifts and the money they earn through a part time job. They should learn how to write checks and reconcile their bank account on a monthly basis.
After they learn how to handle their checking account, the next step is to obtain a bank card (also known as a debit card). A bank card looks just like a credit card, but unlike a traditional credit card, a bank card is tied to a checking account. With a bank card, there is never any chance of being charged late fees or excessive interest rates. It also avoids the possibility of spending money they do not have. Over spending is always a possibility with credit cards if there is a high credit limit. Many students will be tempted to spend up to this limit no matter how responsible they are.
The best way to ensure an excellent credit rating and avoid
the high interest rates and excessive fees charged by financial
institutions is for teens to use either a debit card or a credit card
with a low credit limit ($100–$200) and pay the statement in full each
month.
Return from Credit Card Offers to Financial Planning