Dear Roadie,
My shopaholic daughter, a freshman in college, signed up for one of those college student credit cards in the student union. The interest rate is sky-high, and she’s never been great at budgeting, even when she had a part-time job at an ice cream shop in high school. Is this the worst idea ever and if so, what, if anything, can I do about it?
— Worried About My Shopaholic Kid HavingPlastic
Dear Worried About My Shopaholic Kid Having Plastic,
Ahh, I remember credit card companies setting up shop in the student union and school bookstore when I was in college, and I can see from your letter that not much has changed. They’re still preying on young adults with little to no history of managing money, let alone the abstract idea of “credit.”
But here’s the thing. College students aren’t kids. They’re adults, and successful adults have to learn how to manage their money, which includes learning how to manage credit. Whether it’s a car loan, a home loan, or a student loan, college students will eventually need to learn how credit works, so putting off the inevitable is not necessarily a good idea.
First, let’s talk about how credit cards for college students are different from regular cards. Credit cards for college students are tailored to accommodate the needs of first-time credit users. They tend to have lower limits – typically $500 to $1,000. They also have higher interest rates, easier approval processes, and features focused on helping students build credit responsibly. Regular credit cards, on the other hand, are more likely to target experienced credit users with higher credit limits, more complex rewards, and stricter qualification standards.
In many ways, credit cards can be both a helpful financial tool and a potential risk for college students, depending on how they are used. For starters, having a credit card in college helps students begin to build their credit history, which will be important once they graduate and want to rent an apartment or buy a car. Learning how to use a credit card responsibly also provides college students with a sense of financial independence. It’s a confidence boost to know that they can handle emergencies or unexpected expenses without needing immediate help from Mom and Dad.
Depending on the credit card they select, there may even be rewards and cashback opportunities they can take advantage of, saving them money in the long run. This is especially true if the card provides travel benefits and they’re attending college far from home.
The Cons of Credit Cards for College Students
All that is not to say that having a credit card in college doesn’t have its downsides. Without proper budgeting, students can quickly begin to accumulate debt at a time when they have no income, especially if they don’t pay off their balance in full each month. High interest rates can make it difficult to catch up. If your daughter decides to only make minimum payments or even miss payments, she’ll likely face even higher interest rates and late fees, which can quickly add up and worsen her financial situation.
What concerns me the most about your situation, however, is that you used the word shopaholic to describe your daughter, and having access to credit can lead to impulsive spending in those who already tend to overspend. Some of these scenarios can wreak havoc on your daughter’s credit before she’s even had a chance to learn how to manage it. Poor credit can have longer-term consequences, such as difficulty getting approved for loans or higher interest rates on future credit.
Finally, I worry that students who don’t manage their money well may become too reliant on credit cards for day-to-day expenses.
Learning How to Manage Money BEFORE Getting a Credit Card
Maybe the best way to dip your daughter’s toe into the world of credit cards is to give her a set budget that she needs to work within each month as a way for her to learn how to manage money. If she succeeds for six months or more in a row, chances are she’ll be able to manage a student credit card with a lower limit just fine.
If she’s not quite ready, she may find that sticking with a debit card is her best path to financial independence, at least for now. Unlike a credit card, which can accumulate debt and often charges annual fees, a debit card can keep her more accountable financially. She may be charged overdraft fees, but she won’t have to worry about the impact of a high interest rate.
Of course, there’s nothing to stop your daughter from getting a credit card if that’s what she wants, but who knows? Maybe receiving notices and late fees and seeing dips in her credit score will scare her straight in a way that Mom’s words of wisdom can’t.
Eventually, most students will have to figure out how to build credit responsibly. Managing a credit card teaches students about budgeting, interest rates, payment deadlines, and financial responsibility, which are essential skills for adult life!
Have a perplexing college question? Email Dear Roadie for advice at dearroadie@road2college.com
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