College seems like the logical time to introduce a credit card. However, many young adults have little to no experience with budgeting. This issue can lead to serious consumer debt. So, is it time to set your child up with a credit card? If so, what are the do’s and don’ts of giving your child a credit card?
Do’s & Don’ts of Giving Your Child a Credit Card
A recent study shows that 63% students have an average outstanding credit card debt of up to $500. 28% of students have an average outstanding credit card debt ranging from $500 to $5000. Coupled with their student loan debt, college graduates can be under a tremendous pressure of severe debt. Therefore, it is best that you understand the do’s and don’ts of giving your child a credit card.
- Cosign on the credit card – Cosigning on the credit card gives parents the opportunity to monitor their child’s spending. This can ensure they are being responsible and not going overboard with the spending.
- Teach students about credit early – Provide your children with the tools they need to be financially successful early on so you can feel confident that they will use the card responsibly.
- Shop Around – Do your research and compare credit card options to make sure you are getting the best card to fulfill your child’s needs.
- Constantly pay off credit card debt for your child – Limit your child to only one ‘bail out’. This will show them they need to learn how to become financially independent and responsible.
- Use on-campus credit cards – Don’t let your child sign up for a credit card at an on-campus table that is giving away freebies. There are probably cheaper and better cards out there.
- Give your child more than they can handle – Start off slow by giving them one credit card so they can learn to be financially responsible. With too many credit cards, it is easy to forget which has been paid off and which has not.
Tips for Giving Your Child a Credit Card
- Even though it may be their first credit card, banks have absolutely no patience with those who cannot pay their bills on time. Evaluate the option of a secured card for a child that has little budgeting experience.
- Many college students overlook their credit card and forget to pay off their balances. This can leave them with a hefty debt. To avoid this, parents should set boundaries with their children prior to setting them up with a credit card.
- It is important to create a budget prior to giving your child a credit card. A budget will help students limit the temptation to make unnecessary purchases. Also, it will enable them to start building credit in a responsible manner.
See American Consumer Credit Counseling’s Financial Workbook to learn more about financial management before and during college.