College and Credit Cards: How Parents Can Play Professor
Last year, college campuses across the country had 2.1 million recent high school graduates walk through their doors — a number that will likely be matched in 2016. But a freshly printed campus ID isn’t the only plastic eager students will carry this fall. A recent survey commissioned by USAA found that as parents send their children to college, most make sure their kids pack at least one credit card in their wallets.
Parents cite a number of reasons why their child has a credit card. Most overwhelmingly, the primary reasons are the ability to build credit history and convenience.
However, one-third of parents surveyed say their children will not have a credit card in college. JJ Montanaro, a certified financial planner with USAA, encourages parents to reconsider if they feel credit cards might be unnecessary.
“College is a place to learn — whether it’s academics or life lessons,” he says. “Building a credit history and understanding of how to manage credit should be a part of the overall college experience.”
Montanaro offers parents this syllabus for helping their college students make the grade in Credit Cards 101:
Surprisingly, parents say they are just as likely to discuss budget management as they are academic priorities with their college-bound child (both 82 percent). This is great news, but Montanaro encourages parents to lay a good financial foundation well before their kids are headed off for higher education. Before college, parents should teach their children the basics of setting a budget and following it.
Select the right card.
Since the 2009 CARD Act, it is more challenging for students to get a credit card without mom and dad’s help. Parents report that nearly 50 percent of college credit card holders are authorized users on their account or using a card they have co-signed for.
“It’s a great idea for the student to have a card to which the parent has access and visibility,” says Montanaro. “Keeping a clear line of sight into how the card is used and paid each month allows parents to help young adults learn from their mistakes and create successful money and credit management habits.”
For students who still need training wheels, a secured credit card can be a good option. When they apply for one of USAA’s secured cards, they’ll also open a USAA Bank two-year variable rate Certificate of Deposit (CD), which allows them to earn interest while helping to build a positive credit history.
Master the fundamentals.
While there are many benefits of having a credit card in college, irresponsible use can have lasting consequences. Montanaro suggests using a credit card for recurring charges, like cell phone or internet service, as a safe way for students to build credit. Once they are ready to charge a wider array of expenses, both parents and children must abide by the most important rule: Pay off the card in full each month.
Learning to responsibly use credit cards while in college can have many benefits. In the short term, it allows students to build a positive credit history in order to purchase a car or rent an apartment once out of school. Longer term, they can carry positive credit management habits with them throughout their lifetimes. Montanaro sums it all up, “Allowing your kids to dip their toes into the world of credit cards while you’re able to closely monitor the situation provides an opportunity to learn and the freedom to fail without big stakes."