Is having a credit card a good idea for a college student? It can be. Whether or not you agree, there are new rules in effect that are really good news for parents and students. As of February 22, 2010, getting a credit card is much harder if you’re under 21, thanks to the Credit Card Act of 2009. If you are under 21, you will be able to get a credit card only under certain conditions:
- a student must be able to prove sufficient income to support credit card payments; OR
- the student can get an adult cosigner; OR
- a student can be an authorized user on someone else’s card.
Promotions for credit cards (you know, the free T-shirts, etc.) will be not be allowed within 1000 feet of a college campus.
It’s high time these new, stricter guidelines were put into place for kids and credit cards. According to USA Today, in 2008, college seniors with at least one credit card graduated with an average of $4,138 in credit card debt. There have been stories of college students who committed suicide because they felt they would never be able to pay off their credit card debt.
The new law should help protect students from their own irresponsibility. But what’s the best way to help students learn financial responsibility? I would argue that learning how credit works is an important part of it, but probably not the most important part. I also believe that the best ways to learn responsibility depend on the child, as I discussed in a February 13 New York Times article. Some key elements include giving the child some financial independence and letting him or her learn from making small mistakes. Nothing drives home the importance of budgeting quite like running out of money before payday and living on ramen noodles for a couple of days. Is it important for a new college graduate to have a great credit score? Maybe. However, it’s probably more important to teach your student to save for financial goals rather than borrowing for them. If you think having a credit card is important for your student, I’d recommend setting spending limits by getting a prepaid credit card and letting your student know it’s only for emergencies.