Is Your Teen A Wise Money Manager?

August 2003

It’s August and many families are busy packing their recent high school graduates off to college in Wisconsin or farther afield. Have you checked everything off your list…clothes, sheets, towels, and…a credit card? And, is your college freshman ready to handle the responsibilities of a credit card?

Many parents prefer that their student have a credit card to pay for essentials such as school supplies and gasoline. Some have already allowed their teens to be a “user” on their credit card or have allowed them to have their own credit card with a low limit, in order to acquaint them with the ins and outs of money management. Parents feel more secure knowing their student will have the ability to take care of an emergency situation with a credit card.

It’s a good idea for parents and teens to predetermine the amount that the teens are allowed to charge each month. Parents should ensure that their student understands the importance of keeping some of their credit limit in reserve for an unexpected emergency. By adding a teen to the parent’s credit card, parents can monitor usage and prevent surprises since your teen cannot run up months of debt without your knowledge.

Although your student will be tempted to get his or her own credit card, try to encourage your student to use your credit card for at least the first year of college until they prove they can handle financial responsibility. When they do finally apply for their own credit card, encourage them to shop around for low fees and rates. Caution them to not be taken in by “teaser rates”—low rates that jump after a few months. The novice card user needs to understand the consequences of paying the balance—interest accrues until it is paid off—and that the consequences of paying late include a hefty fee and potentially a bad credit report. Encourage your student not to apply for a credit card just to get the free tee-shirt being offered.

The Wisconsin Department of Financial Institutions Web site offer many suggestions, including: www.wdfi.org/wca/consumer_credit/credit_guides/choosing_a_card.htm.

Students should understand that credit bureaus will maintain their credit history in the form of a credit report. This history will be reviewed by future employers, insurance companies, apartment managers and consumer businesses, such as auto dealers. Maintaining a positive credit history is an important responsibility.

Most high school and college students want to prove they can manage their own lives, independent of their parents. This is just a part of growing up. But to accomplish this goal, they must prove they can be responsible money managers.

Most parents reading this column would never have dreamed of having their own credit card in college. But today’s students have more purchasing power than ever and credit card companies are vying for their attention. If you’ve taught your child good money management, you can drop them and their credit card off at Lawrence University, UW-Stevens Point, or other college with peace of mind. Now, if you could only teach them how to do their own laundry…
 
Provided as a public service by the Community Bankers of Wisconsin (CBW)