I put everything on my CC and pay it off monthly. This lets me avoid the creative banking that’s so common with a lot of banks (i.e., deducting debits from an account THEN adding deposits, which is more likely to cause someone to go into overdraft; which will then allow the bank to assign a “fee”, even if you have overdraft protection).
I disagree for the reason listed above. Debit cards have a nifty “float” period with a LOT of banks (Wells Fargo, for instance, somehow can manage to approve a debit card transaction but not to move the damned thing so that it shows up in my online account). That can get people into trouble quickly – you end up in negative balance and a lot of that money goes to the bank for fees. The hell with that.
These days, there’s no reason for kids to not call home. Parents don’t even have to wire money these days – Google Wallet works nicely and you can get a card that’s funded from GW. If it is overdrawn, no fee, it just doesn’t work.
My only real warning is that the risk of a $500 limit credit card isn’t just that he might spend $500 – it’s also making regular payments. If he goes 90 days unpaid on a $35 balance, that’s far worse to his credit than running up $400 but making the minimums.
It might be worth seeing if the card can be linked to an automatic withdrawal payment if you think he might otherwise forget or miss it. Even now, we have our cards set to automatically withdraw a minimum payment if we don’t otherwise set a “real” payment. It’s something that very rarely comes up but it’s just not worth the “Oh shit, that was due yesterday” moment and the credit company bouncing you up to a 29% penalty APR.
Sounds like you are asking the right questions. What you are going to need to become accustomed to is your lack of a right to access to his records. For example, even if you are paying the tuition, the school will not allow you access to his grades.
So, my recommendation is that with credit, finances, grades, drinking, sex, health, whatever, your best bet is simply to try to encourage continued open communication, and try to instill good habits in him, and hope you notice and help steer away from potential pitfalls. Sounds like you are already doing that, so just stay the course.
Don’t be surprised when your son does something mindbogglingly stupid. I forget the specifics, but we were always VERY open with our kids about money matters and the need for fiscal responsibility, and were shocked at our eldest’s assumptions about budgeting. Her concept of budgeting was along the lines of - after you spend all your money, more money appears from somewhere. And this was from a super responsible, straight A student! :eek:
I think all 3 of my kids did something financially stupid - just an overdraft or something. So don’t be shocked when that happens.
If your kid is borrowing for school, do your best to keep the amount to a minimum, and have the debt go to necessary expenses. We pretty much beat a constant drum of avoiding consumer debt, which seems to have taken with our kids.
I’d probably offer to help him with various financial things. Maybe when he’s home, show him how you go thru your credit statement, or offer to go thru the application and first few statements with him. Offer to help him with his tax returns. Good practical way to impart good habits and keep alert to potential issues.
Back in the 90s, credit card companies were handing out cards to students like candy. My oldest son got one and ran up $3000 in bills before the company decided to cut him off. They contacted us, his parents, to tell us about the huge debt, suggesting we pay the balance.
They thought they’d suckered a teenager and that mom and dad would cover for their mistake. So sorry, they had to negotiate with that 18 year old who had zero money. In the end he paid $1500 and they destroyed his credit. A perfect solution I my opinion. He couldn’t get a card for years and the credit card company learned a valuable lesson.
The worst they can do is ruin your credit for a while. That can be bad yes, but not that bad.
Most places still take cash as an option. It’s arguably a better option for anyone (of whatever age) who has a tendency to unconsciously spend money without paying attention to how much things cost or whether they can afford them.
It was a rhetorical question intended to point out that a debit card isn’t intrinsically safer than a credit. Either one can be challenging, in that they each permit the user to rack up charges quickly without an awareness of what the running sum is. If you’d like more earthly limits, then how about a $500 credit card versus a debit card with $1000 in the account?
If part of growing into a responsible adult is taking reasonable risks in order to learn and grow, then I think having a first credit card with a low limit - one that can, to a high probability, be paid off in a timely fashion if it gets maxed out - is a reasonably risky thing (unless the person in question has already demonstrated problems with financial self-discipline).
If he has a problem with responsibly paying a credit card bill on time, then he’ll have just as much trouble handling a cable/internet bill, or a cell phone bill, or a doctor bill. Missing payments on any of these is detrimental to your credit rating.
Sure. Conversely, racking up $200/mth on some fancy phone/data plan that you can’t afford is just as bad as $200 in beef jerky you can’t afford. My point is just that “low credit limit” isn’t a singular solution to credit pitfalls.
If he’s just leaving home for the first time, he’s more likely to have a credit card than a cable or doctor bill anyway (assuming dorm life and on-campus clinic) so this might be the first time he’s experiencing the expectation of on-time monthly payments.
My suggestion is coming from 25 years experience as a university employee rather than as a parent.
It sounds like the bank account system you have now works fine. Why not check with the bank and see if you can’t get a Visa/Debit card on that account? Some of the best and most level headed kids in the world run off the rails a little bit when they first get to college.
There’s always the wailing and gnashing of teeth when a lot of students come back from the semester break with a credit card brake firmly applied. I’m not saying your son would abuse the credit card privilege or even be tempted. But it is definitely an observational lesson to see how many freshman come back from Christmas with their wings clipped.
The change from home to dorm and supervising yourself is a pretty big one already. I’d hold off on the credit card and stick with debit until he finds his footing.
Thanks for all of the opinions. I am currently exploring the options offered by our little bank - we appreciate that they are local and convenient for us, but they are also a bit limited in the financial products they offer. We may be able to link a credit card to the Boy’s checking account. (And, to give an idea of what I mean when I describe Zack as “responsible,” we agreed that he would save at least 25% of his earnings once he got hired for a paid apprenticeship. I just looked at his account balance, and he has actually saved nearly half so far. He also contributes to his 401k, buys his own gas except when I reimburse him for errands he runs for us, and buys the majority of his own clothes. He’s an A student, and will graduate high school with 15+ hours of college credit. He isn’t perfect, but he’s a damned good kid.)
Other than the local bank, we are also exploring the Capitol One Journey card, because CO has good tools for keeping up with balances and billing dates, and a much better set of online tools than Hometown Bank & Trust. The Journey card has no annual fees, and a modest reward program, and the reviews look promising. We already have one card through CO, and I haven’t had any bad experiences with it.
We did a similar thing with our college freshman son. He applied for a low-limit card at our credit union (at which he also has an account), which we co-signed.
I have access to his account, too, and I monitor it every month (which he knows about). I only had to chew him out once so far. :rolleyes:
He’s not working now, so he is still fully dependent on us, so I pay the bill every month. When he gets a job this summer (hopefully), he will pay the bill himself.
We got the card mostly for convenience, and so he didn’t have to constantly be going to ATMs and paying everything with cash (like textbooks).
Once nice thing about the card is that it allows us to see what he’s spending money on. He does always ask first before making any major purchase.
Also, hopefully this will help him build a credit history.
What Dad did was, we got a debit card and he transferred my “pocket expenses, travel and books” yearly budget to that account. Other families used the same mechanism with the amount transferred monthly.
That was my arrangement back in the dark ages before debit cards - but with a checkbook. My parents put a semesters worth of money in there, I had that much money. If I ran out, I was restricted to food from the dining hall and whatever was being offered for free. Until I got my own credit card my sophomore year.
College students living in dorms don’t NEED much money - your meal plan is paid for, your lodging covered, and the school generally has a ton of free or cheap entertainment options. At most campuses, a car is a bigger burden than help.
He should absolutely apply for several credit cards. Having them will greatly increase his credit score as both the credit lines (now) and the age of accounts (later) will help his credit score. The more cards (annual fee free) he can get the better, as when he really needs credit later each card counts separately towards the age of his accounts. And more opened early means the overall average is longer which equals a better credit score.
That is a separate question from whether he should USE the credit cards. I’d be inclined to apply for them and simply put them in a drawer for awhile and give him something like a nationwide visa buxx card, load it with say $100 and see how fast he goes through that before something with an open ended credit line.
Edit to add, using the credit cards doesn’t do anything for your credit score or building credit, it is the act of having them, and NOT paying late that impacts it. No Payment due is the same as didn’t pay late from a credit report perspective.
One thing you can do with a credit card is have them set a low spend limit. This way you can get a card with a higher credit limit, but set an arbitrary spend limit lower than that. The spend limit acts like a credit limit, but it’s easier to raise the spend limit if you need to make a big purchase. If you get a low-limit card, raising the credit limit has to go through a more complicated process. But to change the spend limit, you just call the CC and ask them to change it.
So if your kid applies for cards and they come with high credit limits, call the CC and set a low spend limit on them. That way they can’t get into too much trouble right away.
I would take the fact that you were able to have a calm discussion with him on the subject as evidence that he will not go haywire. And it does help build a credit history. I think you cannot now stay at a hotel, buy an airline ticket or rent a car (not that an 18 year old could rent a car) without a credit card these days. So it is important to get started.
When my youngest started college in 1991, we got a third card on my account. But in those days you didn’t buy snacks with them and he actually used almost exclusively to buy his airline tickets. I don’t think my two older kids even had credit cards till after they graduated.