Give Your College Student a Course on Credit

Learning About Credit Now Could Prevent a Lifetime of Financial Problems

Your almost-adult children have so many things they should be learning in college. There is the educational aspect, of course, but they are also learning to manage on their own and to function with others in society. Another useful skill college students should learn is how to handle credit. Unfortunately, many do not pay attention to where money comes from, or even know what it means to borrow money.

They are surprised to find out how much debt they have when they graduate, and start their adult lives on the wrong foot.

Parents can help their teenage children avoid problems down the road by taking the time to teach them about credit as they leave high school and enter college. When used properly, credit can help your child achieve a certain goal. When misused, credit can become an anchor that weighs heavily on your child’s future. Here are some basic things all parents should be teaching their college students about credit:

  • Interest Accumulates Quickly: Whether using a credit card or taking out a student loan, many students don’t understand the impact interest can have on the amount they must repay. They borrow $1000 and don’t think that is too bad, without realizing that interest can accumulate very quickly. They begin making minimum payments while still using credit for other purchases, and soon find that they are not making any real progress in repaying their debt. Teach your child to use credit cards only if there is enough cash available to make a full payment, and to think ahead about how he or she is going to repay the student loan money that is borrowed.
  • Deferred Doesn’t Mean it Doesn’t Exist: With subsidized federal student loans, the federal government is responsible for paying interest while the student is in college. With private or unsubsidized federal student loans, the student or parent borrower is responsible for paying interest while the student is in college. This interest might be deferred so that no payments are required until the student graduates, so it can be easy to forget. Interest that accumulates for three to four years can mount up quickly. Teach your child to use student loans judiciously, and to borrow as little as possible.
  • There is a Difference Between Debit and Credit: Using a debit card for purchases is similar to writing a check. There should be money available in the account to cover the purchases. Unless there is some type of automatic overdraft capability, the student is not allowed to make any purchases beyond what is available. Credit cards can be loaded with a certain amount of money, or have a spending limit placed on them. A student who is just learning to handle his or her own money should not have unlimited access to credit. Teach your children how to create a budget before they head off to college. They should only use any debit or credit cards you may supply for spending that falls within that budget.

It is never too early to talk about financial responsibility, but it can be too late if you decide to wait until your child graduates from college. By then, negative spending habits could be firmly entrenched that will be difficult to break. Give children one of their most important college lessons before they ever set foot in a classroom, and teach them how to use money and credit responsibly. This is one lesson that will definitely have a lifetime of value.