Why Every Student Should Have A Credit Card

 

Students are simply not getting adequate financial education before being expected to handle their own finances as adults. In my kids’ high school there is a single semester personal finance class, but it is an elective. If the goal of an education is to give young people the skills they need to be successful functioning adults, how can this not be a required class? Even then, a single semester seems like a dreadfully inadequate amount of time to cover seemingly infinite financial subjects such as budgeting, tracking spending, insurance, and retirement planning. The responsibility to teach these lessons falls on parents, and I take that responsibility seriously. Over the weekend my wife and I decided it was time our 18 year old son take his financial education to the next level. We decided that our son should get a credit card.

Given the fact that my wife and I racked up over $100,000 in credit card debt, and then paid it off, you might think we would tell our son to stay away from credit cards. We might share with him the dangers of using credit, and teach him how to avoid them at all costs. I believe that would actually be a disservice to him. Just because we abused credit cards, doesn’t mean he will. Many people are able to use them as a financial tool to enrich their lives, and even earn some great perks. Our job is to educate him as to how credit cards work, how to use them correctly, and also make sure he understands the consequences of abusing them.

Here’s what we hope to accomplish by having our son get a credit card:

  • Credit Score : Whether you like the concept of a credit score or not, avoiding it completely during your lifetime is almost impossible. Eventually our son will apply for a car loan, a mortgage, or some other type of credit. This may be difficult with absolutely no credit history. By having him open and use a small line of credit under our guidance, we can help him lay the foundation of a solid credit history that will help him if or when he decides to apply for credit later.
  • Financial Education : Using credit cards are ingrained into our society. While it’s possible to rent a car or a hotel room with a debit card or cash, it’s more convenient to use a credit card. We want to teach him how to use credit cards responsibly, get a feeling for what they’re about, and how they work, and then make a responsible, educated decision regarding how he wants to use credit for himself.

With that in mind, we having apply for a credit card through our bank with the following terms and conditions:

Limited Use

Initially, he will use his credit card to purchase gasoline for his car. As time goes on, we may allow him to use it for other purchases.

Provide Access To Account

He must either give us the ability to look at his account online, or show us his monthly statements. This will allow us to monitor his credit card use.

Limit Credit Limit

Regardless of what he is approved for, we will ask that the credit limit be set at no more than $300. With a low credit limit, even if he maxes it out, it can be paid off relatively quickly.

A person’s credit history and score can have a significant impact on what opportunities they can and cannot take advantage of. Having great credit can be a huge advantage if used correctly. By having our son get a credit card, and teach him how to use it correctly under our guidance, we can give him the valuable skill of how to use credit correctly as well as a great start in building a positive credit history.

What do you think, EOD nation, would you help your child get a credit card and teach him or her how to use it?

About Travis

6 Responses to “Why Every Student Should Have A Credit Card”

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  1. Our school district offers a full year personal finance class, but it is an elective too, currently about 25% of the population takes it.

    I’m much rather have my children never use credit cards, but would not want their first experience with them be on their own with no guidance. Having the ability to use this as a lesson, with limits, and open conversation about credit is a great approach.

    It is something my wife and I are considering for our almost 18 year old twins.

  2. Shay says:

    Wow, totally disagree. With the advent of debit cards, I never see a need for my teenager to use a credit card. It’s just debt, plain and simple. Once she’s 18, I won’t have the right to see her statements. I wouldn’t want her to have a credit card get away from her. I can already tell that she would overspend right away due to her personality. I will caution and strongly recommend that my children never use credit cards.

  3. Anita Atwell says:

    Oh good. I am glad we are not the only parents who feel this way. We have taught our children that it is wiser to NOT get credit cards. We had to go through 25 years of unbearable debt. Our children saw what it did to us. We have been debt free, credit card free for 6 years now. What a relief not to play the credit score game. We use eCredible http://stevestewart.me/sos033-ecredable-is-incredible/ It is a system which legally uses a score based on regular payments for Bills such as electric, water, gas, life insurance, phone etc… Which we think it a better indicator of how well you handle finances. The only reason to have a credit score is to borrow money. When you borrow money you become a slave to who you owe money to. Our daughter is 28 has no credit card and 8 thousand in savings. Our son is 26, in the Army, has no credit card and almost 26 thousand in savings. They both drive older cars which are paid for so no car loan. They are saving so when they need a new car they can buy it with cash. Underwriting and eCredible is a legitimate way to be able to get a Mortgage with a bank. Again, I wake up almost every day so thankful not to be in debt and not to have to deal with credit cards. We do have a mortgage but are working very hard to pay it down.

    • Travis says:

      You have done a spectacular job in teaching personal finance to your children, Anita. I understand your perspective with Ecreditble as well. I’ve personally had conversations with Brad (The original EOD) and Steve (who you linked to) on this subject. I’m honored to call them both friends. While it is a valid path to take, it is also more difficult. I would certainly like to see my kids graduate and live a debt free life, never taking on debt of any kind. However, should they choose a more traditional path, I want my son properly educated as to how to correctly use a credit card, know the pitfalls, AND have a credit history already started. If they choose a different path, that’s great. But my job as a parent is to fully educate them so they can make an informed decision for themselves, and have the reasoning and skills to back up that decision.

  4. Anita Atwell says:

    I think another alternative to a credit card would be for your son to build up a $300 emergency fund. Also a fund for things he would like to buy. That way when he has enough money then he can get what he wants. And with the emergency fund in place that would cover, well, any emergency he might have. Of course those funds can grow larger as he gets older.

    • Travis says:

      I think I may not have fully communicated what we’re doing. In no way am I advocating him just charging stuff on a card. He already has a savings account and emergency fund. We’re working on teaching him budgeting skills, and budgeting a certain amount for gasoline during a month. That amount needs to be set aside from his spending money so it’s available to pay the bill when it comes. This teaches:

      Budgeting skills
      Saving skills
      prompts discussion on revolving debt and paying interest.

      It also goes down the path of building a credit history to help him should he choose a particular path in life. (as per the previous comment response)

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