By Sheryl Smolkin
Kids going away to college or university for the first time are typically bombarded by credit card offers from the big banks at frosh week events. If the bills are paid every month a personal credit card can be the first step to a positive credit rating.
To compare available terms on student credit cards take a look at this quick comparison table. However, there are other options that will allow you to more easily monitor your child’s credit card use and step in quickly if there is a problem.
Because my husband and I each have a personal credit card in addition to the card we use jointly for most family purchases, we decided that the best solution was to get my daughter another card on my account and one for my son on my husband’s account.
We never worried that they would abuse our trust because we check our accounts very frequently online, and if a problem did arise, we knew we could nip it in the bud pretty quickly.
But if you are not comfortable with giving your college-age children their own card or a card on your existing account, another option is a reloadable prepaid card.
If you are considering a prepaid card, carefully check out the sign up and monthly maintenance fees for this type of account. And keep in mind that these cards typically do not involve any credit reporting, so they will not help your offspring build a credit history.
Secured credit cards are also available. They allow you to put down a deposit at the bank that secures the balance. Your child can’t exceed a preset limit and he will begin to build a credit history. But you will have to co-sign, so closely monitor the card.
Whatever type of card you select, here are some ways you can educate your kids so they will use their new privileges wisely:
Interest mounts up: Do the math together. For example, my CIBC Infinite VISA card charges interest at 19.99 per cent a year or .05476 a day. Compare that to the .5 per cent annual Advantage for Youth Interest Rate CIBC is currently paying on its Premium Growth Accounts!
Pay bills in full: Be a good example. Avoid paying interest by paying your bills in full. Make it clear that anyone who can’t afford to pay off credit card bills each month can’t afford the items charged to the card.
The credit limit is irrelevant: Set personal spending limits. Just because a card has a credit limit of $1,000 or $20,000 doesn’t mean a cardholder should charge to the max. Unless your child is spending for budgeted items and will have cash on the due date, tell him to forget it until he has saved up the money.
Break the rules, forfeit the card: Be clear about the rules of engagement. Make sure your teenager knows if he overspends, or uses the card for unauthorized purposes, it will be cancelled. No ifs, ands or buts.
Understanding how credit cards work and learning to use them properly is an important part of your children’s financial education. By helping them to understand the potential pitfalls of buying on credit when they go away to school, you may save them a great deal of grief later.
Do you have tips for college or university students researching credit card options? Share your tips with us at http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card. And remember to put a dollar in the retirement savings jar every time you use one of our money-saving ideas.
If you would like to send us other money saving ideas, here are the themes for the next three weeks:
|05-Sept||College/University||What kinds of insurance does your child need?|
|12-Sept||Kid’s allowance||How much and what your children have to do to get an allowance?|
|19-Sept||Extracurricular activities||How many and how much?|