According to a 2005 study published by Nellie Mae, a student loan company, 56% of college freshmen reported having obtained their first credit card by the age of 18, and 56% of undergraduate students have at least four credit cards with an average balance of $2,864. Credit card debt added with student loans can add to the crippling effect of emotional and financial stress, and can lead to years of hardship for these young adults.
Most students are solicited with credit card offers at college campuses with special promotion offers as an incentive. Others receive solicitation in the mail, and some teens under 18 acquire a credit card through their parent's co-signature.
Many students are graduating from college and starting their lives in thousands of dollars in debt. While many may work two or three jobs to pay for these debts, some are electing to drop out of college to pay for their debts, thus leading to depression and in some instances, suicide.
Techniques for teaching money management:
- establish an allowance (if your child does not have a part time job)
- begin by using cash
- compare prices before buying
- open communication with your child about basic household expenses
- take the opportunity while involving your child with household expenses to show how to manage a checkbook
- involve your child with understanding your credit card statements and interest rates
- discuss the importance of credit ratings and how they are established
- open a savings account
- set and maintain a monthly budget
- open a checking account when your child is ready
- observe your child's spending habits with a debit card
- encourage your child to take responsibility for basic bills (such as a cell phone)
- keep communication open with your child about finances
- saving for contribution towards a car or education
Teens and credit cards:
Whether or not a parent allows their teen to obtain a credit card remains a personal decision. However, there are some important factors to consider:
- does your teen have a clear understanding of financial responsibility?
- does your teen maintain a budget?
- how does your teen handle and maintain their savings/checking account?
- is your teen able to pay their bill promptly?
- does your teen have a clear understanding of identity theft, and how to protect himself/herself from it?
- are you willing to co-sign for your teen if they are under the age of 18?
- does your teen have a clear understanding of interest rates and cash advances?
Financial debt after leaving home:
If your child should find financial trouble after leaving home, you may choose to help him/her financially, and you may encourage him/her to do the following:
- keep the parent/child communication open
- some creditors are often able to help by offering reduced payment plans
- electing to seek a consumer credit counseling service
Preparing your teen while young will help set the importance of financial responsibility before leaving home. This can be done by helping your teen set clear, consistent, financial goals and using discernment and discipline when it comes to spending.
