Many parents will be sending their kids off to college in the coming weeks, and the issue of credit cards always comes up. Parents don’t want their kids to be high and dry if they need an emergency car repair or have a medical issue. For many college freshman, it is a rite of passage to apply for their first credit card and swipe the card for the first time. It makes them feel like a responsible adult, because they are using credit. This is a load of garbage, and it’s exactly what credit card companies want young people to think. Credit card companies have done a superb job at making credit cards feel like a status symbol. That’s why they use words like “gold” and “platinum”.
Blake Thompson, the sound engineer for the Dave Ramsey radio show, posted this on Twitter and Facebook today:
64% of college students have credit cards, half do not know the annual percentage (APR) of the credit card they use most, and 42% of freshmen are credit card dependent. – Center of Economics in Washington
64% of college students have credit cards, and 100% of them can’t afford to pay them off! Don’t we see the problem with that? Credit card companies are extending credit to students who generally have no income. They might have jobs, but it’s only enough money to live on, not pay off credit card balances every month.
What About Emergencies?
There is too much temptation for a broke college student to have a credit card sitting in their pocket. No matter how responsible they are, they’ll end up using it once for something that’s not an emergency, and then it’s downhill from there. If you are worried about emergencies and you want to give your kid a real graduation gift, open up a high-yield, online savings account for them with $500 to $1,000 in it. Don’t tell them the username and password. If they have an emergency, you’ll have the money sitting there to help pay for the emergency.
What about building credit?
For what? Buying a new car after college that they can’t afford? Teach your kids to save money instead of relying on credit. What about buying a house? You don’t need to screw around with a credit card to get accepted for a mortgage. If your kid lands a great job out of school, has no debt, and he or she can prove that they paid their rent on time for four years, they’ll have no problem getting a mortgage loan from a company that does manual underwriting. Lenders that mindlessly look at credit scores to approve loans are the ones that go out of business.
What If I Co-Sign For The Credit Card?
Sure, if you feel like paying for another credit card balance and/or ruining your credit. I know your kid is really responsible, but this is a whole different ball game. It’s college. Kids do a bunch of stupid stuff, their mind isn’t focused on paying minimum payments for a credit card, and there are so many opportunities to spend money in college. One night out could easily be a $100 down the drain. Don’t ever co-sign for your kid’s credit card. You’ll end up ruining your own credit.
You may disagree with my stance on this issue, but please think before you encourage your kids to get credit cards while in college. They don’t have the resources to manage a credit card responsibly, and they end up coming out of college with $10,000 in credit card debt. It happened to me, and I will do and say everything I can to stop other college freshman from getting wrapped up with credit cards.