Student + Credit Card = Mayhem?

by bigcajunman last updated on August 10, 2011

in Credit Cards, Family, University Costs

Let’s stop our commentary on the non-stop laugh riot that is the great stock market melt down of 2011, (not to be confused with the 2008 meltdown) and turn ourselves to another fun topic (suggested by Mrs. C8j).

Students and Credit Cards

In the September Canadian Living in the Budgeting for Back to School section the expert told some naive parent that it would be a great idea for their child (who is 17 years old) to have a credit card, and I quote:

“… and have him set up pre-authorized payments that cover the minimum monthly balance.

The expert is actually a VP at TD, and in fact the response given isn’t completely full of “horse dung”, but I disagree with the primary premise that the child should be allowed to have a credit card (a 17 year old is a child), I just think it is a dangerous concept to introduce to someone that age. The expert does espouse that if you give the child a credit card they should pay it off every month and “… treat it like a charge card…”, but then the assanine comment above was made and she lost me completely.

The last concept you want to teach a 17 year old (or even a 40 year old) is that they should carry debt on their credit card, and that if they make minimum payments that it is a sound financial concept. Shame on you Expert, that is handing a child a financial hand grenade with the pin removed!

There was then some odd comments about building up a child’s credit rating as well, which is kind of creepy (financially at least) in my opinion.

Am I completely off-base on this one?

originally published on August 11, 2011 { 11 comments }

nadine zeldovich August 13, 2011, 4:03 AM

All very interesting to me as I’ve been thinking about this with my 17yo (18 in December) going off to college next month. What’s confusing me is – don’t students have to be 18 to get a credit card? I was joking with him the other day that because his birthday falls after the fall rush, they won’t be after him at all. I figured I’d put him on my credit card as a second card holder in case of an emergency, but I’m getting the idea from these posts that they will give him a card even though he’s not 18. If that’s the case, then I think I’m going to advise him to take whatever card offers any kind of reward up front (gift card, rebate, etc), hold it for 3 months and then cancel it. I’ve taught him that credit cards are the only way you can really take advantage of a bank instead of them taking advantage of you, but only if you use them properly. Have the money to pay off in full every month, take their points/rewards and don’t pay them untli the due date.

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Big Cajun wife August 12, 2011, 6:01 PM

While I agree that every parent knows their child best, I strongly disagree that any 17 year old going off to University needs instant access to credit. Student’s can cope with just about any instance with only a debit card or even cash. (in Canada at least) We buy our kids books on-line before they start the term, and they just have to go and pick them up. We direct deposit rent, untilities and grocery money into their account, they write the cheques. We can buy plane tickets in their name and forward them the itinerary. When our DD’s computer died, she asked for the bill, called us and we deposited the $$ in her account. The idea that a 17 year old need to build up a credit rating is ridiculous. I find it interesting the Bank VP didn’t suggest giving the son a copy of the parents card for use in a dire emergency and only after checking with the Bank of Mom and Dad. That way you know exactly what’s happening, and you don’t get a unpleasant shock when you find out the card is maxed out.

JMHO
Big Cajun Wife and Mother

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Rena Te August 12, 2011, 9:04 AM

Well I co-signed both my 17yoDDs a credit card when they left home for school but they both knew how it worked, that they were responsible for what they put on it and that they would have to pay all the interest etc. The younger one forgot to pay $14 one month and got a $15 interest charge the next month because she had put books on and that cured her of running up a bill. I also had them take out student loans and put it in a high-interest savings accounts (We had saved too in REEEs…on a salary of less than $40,000 per yr and they both still have their DRIPs that they haven’t touched)…in case of emergencies and also to make a bit of interest. Yes, I know it isn’t a lot that they made but still they were happy to see an extra $120 at the end of the yr (for them that was 10 hrs of work they didn’t have to do). They also switched to TFSA’s when they reached 18 so it went totally into their pockets. 1 has finished 4 yrs (total cost $22K per yr) & has pd back all her loans except for $11K but has 12K saved for next yr’s studies. So it does work if u have taught them how to handle their money

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Bankruptcy Ben August 11, 2011, 11:50 PM

I had a mortgage before I had a credit card and I’m only 29. Your pretty broke for alot of university, I’m pretty sure the credit card would be TOOO tempting.

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Vanessa Marko August 11, 2011, 10:11 PM

That sounds to me like a recipe for disaster. If you give a seventeen year old a credit card and tell them to make the minimum payment you might as well max it out for them. Before you allow someone at such a young age have a credit card they should at least be aware that making just the minimum payment will not only cause them to pay much more because of interest charges but it will contribute to them reaching their credit limit much faster decreasing their credit score. Doesn’t that defeat the purpose of why they were given the card in the first place? Just food for thought.

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Andy R August 11, 2011, 11:15 AM

When I was 19, I “graduated” from the first two years at a local community college, transferring to the provincial university for the last two years of the Bachelor degree.

I applied for a few credit cards using a single application form for graduates and received a BMO MC, a Shell gas card, a department store cards for The Bay and Eatons (old timers will remember that last store). All had ridiculously low limits – I believe it was $250 on the MC, but as I used them responsibly, the limit kept automatically increasing.

Over the years, I dropped most of the cards but still have the BMO MC. Back then they had an incentive program called First Home Dollars, which allowed me to eventually accumulate $2,500 toward a mortgage with BMO.

So a college kid with a credit card could be a recipe for disaster, but my card had training wheels and was a great starter tool on the road to financial adulthood.

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- bigcajunman August 11, 2011, 12:08 PM
  
  So are you the exception or are you the rule? Hmmmm….
  
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krantcents August 11, 2011, 10:32 AM

My children went to college at 17 years old with my credit card. I would not have given them my credit card unless I knew that they could handle the responsibility. I spent years preparing them for that day. They are successful adults without debt except for a mortgage.

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- bigcajunman August 11, 2011, 10:42 AM
  
  Interesting, but you gave them YOUR card, not their own, that way you could monitor their spending that much more closely, good idea.
  
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Josh Nylon August 11, 2011, 7:52 AM

My father made me take out a partial loan, with a 1 year term, to buy my first car, even though I had the cash to pay for it outright. His thinking was it would start to build my credit rating, which would be needed when I truly required a loan or a mortgage. Of course, I was already in my 20’s by that time, and able to understand how the system worked.

I believe that limited exposure to credit is important while your child is still under your guidance, so that you can teach them how to use it properly and the dangers. If their first exposure to credit happens after they are living away from home, then how are they to know how to use it properly.

Credit card companies will bombard them with credit applications. The temptation will be irresistible if they don’t have some basic grounding in the benefits and dangers of credit.

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Sustainable PF August 11, 2011, 6:56 AM

Not off base at all. However, the “expert” has his best interests in his banks cards earning interest. He could care less about the kid.

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