I recently read an article asking if students should get credit cards and it got me thinking about my performance with credit cards as a college student. My saving grace was that I didn’t know I could have more than one credit card. If I would have known that I am confident that things would have been a lot uglier.
While my parents did a fine job of warning me of the dangers of credit cards, it seems that I still needed to learn that lesson the “hard way”. But now that I have learned the lesson (after repeating it a couple times) I see things with a different perspective.
While Linda and I still don’t use them, we do each have one as an emergency backup (which realistically we would never use – since we have a decent sized emergency fund). Generally, when asked, I recommend that people avoid using credit cards because I have seen too many people’s lives get destroyed by just using them. And you know it is often the same story, “Well, I promised myself that I would pay it off each month, and then X and Y happened and now a year later, it is maxxed out.”
But credit cards are a tool
Even with all the people who use credit cards to their detriment, I still do find people (a disciplined and rare few) who actually use their cards to their benefit. They actually do reap some of the rewards that the cards offer and are able to take advantage of some of the conveniences that are offered as well.
But that leads me to the purpose of this article…
Should credit cards be issued to college students?
If you use the fire analogy that people often do when referring to credit cards, then parents should be teaching their kids how to use the credit cards (fire) rather than what actually happens to many college students. I remember walking around my college campus during orientation and seeing credit card booths everywhere giving out free t-shirts if you signed up for a card! Woo Hoo!
For college kids who haven’t been taught how to use them, isn’t this like giving a stick of dynamite to a toddler?
But for those who have been trained how to properly use credit, isn’t it a lot safer? If that is true, should parents allow their high-schoolers to get a credit card, if used with supervision?
Who is capable of properly using credit cards?
As you can tell, I don’t know what the answer is to this question. Dave Ramsey thinks they should be avoided all together, generally I think I agree, but I have a difficult time making a hard and fast rule out of that.
Do you think college students are at a mature enough level to handle credit cards (generally speaking)? How should parents teach their kids the dangers of credit cards? And at what age?
Related posts:
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- Another thing I didn’t know about credit cards
- Who needs faith? I’ve got credit cards!
- FauxPlomas and the watering down of college degrees
- Visa gift cards: A good idea?
- The worst gift cards to have
- Credit card use – my thoughts
- Credit card rewards coming to an end?
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I was lucky in that my parents were very good about teaching me the proper way to use a credit card. I was allowed to have one but I was required to pay it off every month. The biggest reason I was allowed one is because it was around the time when The GM Card came out, and you got 5-10% back on certain purchases. I basically used mine to buy gas at Mobil to earn points, but I paid it off every month.
I think that parents who allow their college kids to have cards should ensure that they know exactly what is happening with it. I know that technically college age kids are old enough to bypass their parents, but hopefully if parents have put in the work to educate their children about credit cards, they won’t need to worry about this.
I defaulted on a credit card that I maxed out in the first two weeks of college. It was a great lesson.
I had no idea what the far reaching consequences that using a credit card had. I would much rather see parent and education(communities not just schools) prep children to become adults, not find ways to help them stay children longer. College seems to be the new high school and children don’t have to grow up until they graduate college at 22 and even then they often live at home. I know it isn’t a one size fits all solution, but the principle is that children need to be taught how to grow up, not to stick their head in the sand and hope they can deal with it later. Often later just means that they can make bigger mistakes with more zeros.
I think with kids such as myself, credit cards can be a great tool. I am VERY systematic about paying mine off. I used them to establish early credit, which helped me to qualify for a 0.0% interest rate on a recent car purchase. It’s also paid for an occasional dinner through the rewards programs.
But it was important to know before getting one what was involved. I had a smart and older friend tell me EXACTLY what to look for in a card and exactly what to do with it (i.e. use it for regular things and always pay it off). He told me to ignore interest rates since I didn’t plan on accumulating interest. He also said no annual fee was very important, and any kind of reward program was icing on the cake.
I’ve met and heard horror stories about kids who didn’t get properly educated. Teenage girls whose parents gave her a card for ‘college expenses’ that she used to buy anything and everything. This same girl would then ask her older sister 2 months later “So, um, what’s interest all about?” and wanted to get pictures taken of the first time she used her credit card. This reflects a horrifically immature attitude about money management and should not be given the responsibility that comes with credit card ownership.
So my vote is to legally require some education on this topic. I’ve heard many advocating high school classes on Finance since so few people understand what’s involved with keeping a budget or investements like stocks, bonds, and IRAs. You could then make this course a mandatory check before anyone is issued a credit card. This would potentially cut down on that ‘pre-approved’ phrase that’s been exciting college students to spend money for the past decade or more.
Happy and Michael,
I think you are hitting on something here in regards to education. I won’t even get into my frustration with our school systems and their lack of financial education, but you have to get a license to have a gun or drive a car, why not have something similar to get a credit card? It sounds far-fetched, but I can’t even imagine how many people would be spared by something like that…
Excellent post friend. You’re right about giving a stick of dynamite toddler – you just don’t do it! Same with credit cards. I must say that I tend to side fully with Dave Ramsey on this one though. Credit has been the driving force to push this nation into debt. People are taking loans that they can’t afford. Credit is becoming increasingly dangerous. You have some great insight into credit, please keep up the good work at your blog. God bless.
Responsible college kids should be. It’s a great way to learn the responsibilities of using a credit card and a great way to help establish good credit when used right.
Good post and topic for discussion!
I believe education is key (in any arena). College students are young adults and in the position to be making decisions for themselves. If properly educated, and with a prayer or two, parent’s should stand back and hope they make their children make wise decisions: as whether to get a card, and if so, wise use of it.
I’m recently graduated college. I also recently went through Dave Ramsey’s FPU. I struggle with the hard-line on credit cards, but clearly understand why Ramsey makes the line.
But I’m above the line! So I tell myself. I have spent WAY too much time reading the ins & outs and fine print of credit cards. I have been savy. I have paid mine off religiously. You could say I’m one of the few “rare” ones who for the past few years have used my (now two) credit cards to my advantage on everyday purchases (like food and gas) … to the tune of about $500. Not bad. Plus my daily purchases are consolidated into two simple payments (each card) per month. How convenient!
A lot of pros in my mind, until I took a step back to dwell on things in the last few months.
1) As Ramsey argues, I’m technically in debt, if even for just a short while. Not a big deal, I already budgeted the money to pay for the purchases. But what if something happens to me, I get hurt, can’t schedule my payment? Or, I die (God forbid) and my wife doesn’t think to schedule the payment amid the sorrow until the account has been hit with late fees and accumulating 20% interest? Unlikely, but something to think about.
2A) I get cashback (1-6%) on everything I’m buying, redeemable in the form of checks. It really stretches the money I use. But I’ve begun to think about where the cashback is coming from. I’ve determined it’s either from the fees charged to merchants, estimated at 1-3% from what I’ve read, or from other, less nimble, credit card users paying late fees and high interest rates.
2B) Do I wish to create higher overhead for businesses? What am I supporting? Do I enjoy doing business with a company profitting the way it does? I know people sign the dotted line and agree to the terms, but the profit is generally coming from the fees and interest on debt, lots of it, weighing down the card users.
3) How much am I really benefiting? $100, maybe $200 per year? That is a day, maybe two, of work for most people. Is the use worth the overall expense?
4) I’ve never thought to use my credit card for emergencies. But many, even Bob, say that’s why they have them. Really? If I need to pay a large bill due to an emergency, I don’t want to put it on my credit card …because I can’t afford it! I would rather seek wisdom and help from God, my true provider. Perhaps talk to my family or true friends for a bailout, or even get on a payment plan with the entity I can’t pay.
OK! I guess I had an “emergency.” Just last month I was at the doctors, and expected a certain co-pay. However, extra services were provided and I owed more than twice what I expected. I didn’t have the cash to pay. The receptionist reminded me they accept credit cards. Phew, I was saved! But, out in the parking lot, talking to my wife, we realized I was charged for services that hadn’t been stated up front. If I hadn’t used a credit card I would have been forced to discuss the charges and pay only part of the bill in person. I like to think I might have avoided paying for what was never clearly explained to me. I eventually got refunded, but this could have been resolved before I even paid.
After clinging to my wonderful credit cards and gaining a few hundred dollars, I’ll be leaving them behind. I’m ready to leave the scheme behind. Once I reach the minimum cashback payout, my wife and I will be closing our accounts. We’ll feel a lot better. I won’t feel like the small business owner I’m paying is losing 3% of his sale to Visa, MasterCard or a megabank.
I guess I’m slightly concerned about my credit score, as it’s good right now and helps make it hassle-free to open an online savings account, get a respectable auto insurance rate, or whatever else our society has woven FICO into. But, I won’t be losing sleep over it.
Oh, please don’t think I’m just trying to be noble or that it won’t make a difference. People say the same about voting. Why bother? Well, change has to start somewhere, sometime, with someone. A recent documentary I watched on Walmart, and it’s effect on communities, brought similar feelings.
Small typo in my long comment (I did pass English):
“and hope their children make wise decisions” not “and hope they make their children make wise decisions”
I believe for a college student to have a credit card they will need to be overly meticulous and overly responsible. Many college students are not when it comes to personal finances. I like what fifi said in that when he does use his credit card “I already budgeted the money to pay for the purchases.”
I think if they are going to use it for whatever reason this is very important to avoid overspending. However, I avoid any use of credit cards but to be objective…if they are used responsibly which is far and in between for most people I don’t see the problem.
one other point to mention is whether college age “adults” are actually biologically more likely to impulse buy, overspend, and abuse credit cards relative to post-grad adulthood. i remember being in college having no regard for consequences (even when i actually knew what the consequences were, i shrugged them off thinking i was invincible). my dad was very frugal so i don’t think i learned this from my upbringing or was genetic – i think i was still in a teenage “i’m on top of the world” mentality that took some of life’s hard knocks to kick out of me. if indeed college age folks are more susceptible to this lack of discipline, education may not be enough. just speaking from my own experience….
I sure wish there were at least more stringent guidelines on who was able to get credit cards when I was in college.
I signed up on campus because I liked the free T-shirt, however, the next few years were spent racking up several thousand dollars of debt.
Personally I think colleges should take an active role in educating their students to the dangers of debt before they are allowed to sign up.
Jason
http://www.redeemingriches.wordpress.com
Absolutely college students should be issued credit cards! They are people too, right? Why not get them on the path towards a lifetime of debt as early as possible?
I really think that responsibility falls directly on the individual who is using the credit card. Either use it wisely or become a slave to debt. Some people, including myself, needed to learn our lessons the hard way, while other are just savvy enough to know better.
Credit cards are soul-less peices of plastic which are controlled by the cardholder, and are neither good nor evil.