Talking to Kids about Heading Off to University/College Part 2 (of 4)
Posted by Gail | Filed under Kids & Money
2. Do they understand the implication of signing a contract? Everything comes with fine print. From cell phone plans to credit card applications, everything has rules. In a world where no one reads the fine print – hey do you think your kid really reads the rules before they click “I accept” on all those web applications? – it’s easy to enter into a contract without really understanding the implications. I can’t tell you the number of letters I get from people who want to know how to get out of their car loan or lease because they’re finding the payments too much to manage. More than a few parents have been shocked to discover they have to cover outrageous cell phone costs and myriad other things their kids signed up for, totally clueless as to how they would actually follow through on their commitment. Which brings me to…
3. Do you HAVE to bail them out? Sometimes you do. After all, they’re learning and some mistakes are too big. But kids need to learn from their mistakes. If you are always rescuing them whenever they get into a bind, they’ll never have to take responsibility for their own decisions. Going a couple of days on soup and crackers will help them see that spending all your money drinking on the weekend or buying that new pair of shoes has it’s ramifications. Heaps of kids have been taught that their mistakes are mommy’s and daddy’s to fix because, well, mommy and daddy can’t stand to watch Lil Suzie suffer. Hmm. You need to let your kids make their own mistakes and come up with their own solutions if you want them to learn that they can. No matter how painful it may be for them and for you, let ‘em sweat some.
4. Has your kid got impulse control issues? I’ve met many adults who can’t keep the impulse monkey off their back. Kids are particularly susceptible, especially if you’ve given into their every whim while they lived at home. But at some point they have to learn to keep their impulses under control when it comes to their money. Have you taught your young’un to stop and think before spending money. Have you discussed things like emergency funds and how useful they can be for hauling your butt out of the fire when things go very, very wrong? Have you shared your own mistakes and how you learned about being prepared for the worst?
5. Is your child going to apply for and use a credit card at school? Credit cards get students in more financial trouble than anything else. Credit card companies target students in certain programs because they know their income potential and they want to grab ‘em by the short-and-curlies early on. It’s a travesty. After all, when else can a person without an income qualify for credit?
Make sure you explain how credit cards work, the implications of taking cash advances (they shouldn’t, not EVER, because of the immediate interest hit), and how to track their spending on their card so they don’t end up with a bill bigger than they can afford to repay. Stress how what they choose to do now can affect them in the future. If you plan to co-sign a card ensure the limit is very low until you are sure your child has the good sense to deal with the responsibility of a credit card.
Tomorrow — Part 3: the cost of student loans and banking
p.s. Thank you, Poetic Justice, for pointing out the typo in the title of the first part. Turns out all the titles would have been wrong. Good eye. Keep looking!
June 2, 2010 at 6:50 am
When I was in College I saw all my friends get credit cards. I saw my sister get one, and yet I didn’t simply because I knew I needed a job to pay it off. Got out of school and working and one month in decided it would be a good idea to get a Credit card. I got turned down because I didn’t have enough work experience, but had I applied 2 months before I would have been gladly accepted into the world of credit.
I think credit card companies should be allowed to target students.
regards,
Jason
June 2, 2010 at 6:53 am
When a student applies for a student line of credit they must have a parent or grandparent as a co-signor…I always explain in detail what co-signing means (you’d be surprised at the number of folks that think it’s simply a signature)…it means that should your child fail to repay the debt as agreed that you as co-signor will pay it and be happy to do so..lol…also, co-signing means that credit is on your report as well and may impact any credit you need for yourself so be aware before going this route…also, as co-signor you do have a right to excercise some control over how that money is used, you can even have your own copy of the statement sent to you if you wish…the bank I work for offers a student visa with a credit limit of 500.00 and ONLY 500.00…which is plenty for a student….
June 2, 2010 at 7:22 am
My parents were terrified on my behalf when I got accepted for a credit card just before school started.
My response? “Dad, how else am I going to build credit? I already know that if I don’t pay it off, I’ll end up in a mess like you guys. My plan is to use it for small things and pay it off every month.”
There was one little slip up, and I let my new computer (2.5 years ago) sit and fester on the card (I had been thinking it would be better to work on paying my loan off, since it was charging more daily interest than the remainder of the computer on the credit card). But since then, there has been no consumer debt, and I paid off my student loan in 2.5 years as well, much to the amazement of my family.
My parents have bailed out my one brother, never offering me anything (other than some groceries during school). On the other hand though, I’m also best able to manage my money!
June 2, 2010 at 8:53 am
I had a credit card before I went to college. I had worked since I was 14, and had a Crappy Tire card. Which I used to fund my first year of college (parents made too much to get assistance, and I was kind of stupid).
There were extenuating family dynamics which I won’t get into, but suffice to say I think “building a credit rating” is over-rated.
I think that there are a lot of more important things to teach kids in school, than the curriculum that existed 30 years ago, and exists today. I think life skills, money management, being parents, cooking, should all have a larger focus than they do and should start in the first grade right up until grade 12.
I think in addition to not being allowed to target students, credit should not be made available to low income wage earners, or over-leveraged people at a higher rate of interest — that they *TRULY* cannot afford, that just digs them deeper and deeper.
But I’m probably a socialist…. give me the world, and I would try to make one big large commune of sharing and caring.
June 2, 2010 at 9:16 am
RE: Credit cards and student ‘targetting’. We call them ’students’ but in fact they’re adults, 18+. This post and the replies makes it sound like they’re 10 years old. Personally I think if you haven’t raised your children well enough to be able to withstand some sales pressure, how are they supposed to stand up to peer pressure? Geez people, we live in a capitalist world, get with the program
I remember when I went to university and they’d offer a “free gift” (chocolate bar) for signing up for a card. I’d laugh, and then I’d see people signing up… sigh.
PS I will never, ever cosign a loan for my son. If he can’t qualify on his own for the loan he wants, then there’s probably a good reason for that.
June 2, 2010 at 9:36 am
Student line of credits are only available with a co-signor (once in a blue moon an exception is made) and usually they really are needed to help fund a students education BUT as the co-signor you really should keep a sharp eye on how that line of credit is being used…my husband and I have a healthey RESP for our son but IF a stu loc is needed to supplement I will co-sign and I will CONTROL the funds…as far as students NEEDING to start building a credit rating, there is plenty of time for that AFTER school is done and they actually have a JOB…I have seen some very very responsible students who do a fanstactic job of repaying their credit cards, stu loc and SAVING…and I have seen the other extreme…most of us know our kids fairly well and with that information we should know how strict we need to be with those stu locs we’ve co-signed for….
June 2, 2010 at 9:52 am
I, too, was concerned when both of my kids applied for and got credit cards while at university/college, especially my “money burns a hole in my pocket” daughter. But do you know what? Both of them were very responsible with their cards and paid them off in full each month (in fact, that daughter pays them off early every month). And credit cards are almost a must in certain situations (booking that flight and hostels in Europe when said daughter backpacked with several classmates across Europe as soon as she graduated–and, yes, she did have the money saved up ahead of time). I guess all the lectures to them when they were teens about how credit cards must be paid off in full each month did sink in!
June 2, 2010 at 10:28 am
Perhaps kids living away from home have more unexpected/emergency expenses than I did, but with proper planning in advance I’m having trouble seeing why a student needs a credit card.
I didn’t have a credit card until I was married. I lived at home and went to university locally. My parents paid the tuition and I paid for the books, bus passes, a multitud of student fees, bus passes, lab fees and anthing else that came up. Each year I figured out what the total would be for books, fees and 8 months of bus passes. That was the bare minimum cash I needed to earn every summer to cover the bare essentials of the school year. I was welcome to make lunches at home (free) but if I wanted to be lazy and buy lunch or dinner at school that was my own expense. If I wanted to go out with friends, that was my expense. I received most of my clothes as BD and Christmas gifts and generally did without the rest of the time. I didn’t hang out with friends at the campus pub, and in those days we didn’t have any of the expenses now considered essential (laptop, cell phone, designer coffee etc etc). Anyone I knew lived pretty simply and therefore our cash requirements were minimal.
I got married between 2nd and 3rd year and took over paying the tuition. My DH and I were on the same frugal page and I continued to completely fund my university costs with summer jobs and a very small PT job through the school year. I felt somewhat guilty that I wasn’t earning an income to contribute to the marriage and we were essentially living off his income. There was no way on earth I was going to use anypart of our day to day budget to fund my education. I figured that was my responsibility and made sure I earned enough to cover all my school related expenses. I never had a school debt, never needed a credit card to float me through tight periods. I planned for the non-negotiable basic costs and built a small fund for miscellaneous extras through the year. If I didn’t have money for something nonessential I simply didn’t get it. Not a bad life lesson.
I understand that school costs have gone up (although so has minimum wage) but I somehow have the feeling that kids now think more about maintaining a lifestyle and forget that the point is to get an education.
Our son is now finishing grade 10 and checking out programs at various universities and colleges. In addition to assessing the academic merrits of each program I’m also helping him calculate the cost of each option he’s seriously considering. We’ll be helping him financially but he clearly understands it won’t be a free ride and he’ll be funding portions of this. I’m hoping to instill in him that beginning with his first summer job this year, he needs to start setting aside a portion so he’s ready with his contribution by the fall of 2012. We haven’t discussed a credit card with him.
If we all make our planned savings goals a credit card won’t be necessary financially to fill any gaps, but I need to give some thought to whether or not managing credit should be part of his education, or something I leave for him to do once he has his first job. At this point I’m leaning toward no card, and having him use those university years to get used to predicting future spending and then saving in advance. Hopefully by the time he gets his first job those habits will be second nature.
June 2, 2010 at 11:06 am
Goodness, what kind of students are you guys talking about? Elementary school? High school??
It’s perfectly possible to be a student, have a credit card and use it reasonably. My fiance and I are both students, paying our own way, we bought a house (so we’re maintaining a mortgage) and we have a credit card that we use for all our expenses so we can earn points. The carryover balance every month is zero. Did I mention that we’re 22 and 23?
People have this nasty habit of placing us all in one size fits all categories. The number of times we were told we couldn’t handle a mortgage (even though ours is only $250 a month), we should have given up. Thank goodness we didn’t, because we’re building equity and have a phenomenal credit rating.
Funny thing is, I think a lot of people my age would love to be financially responsible, but don’t know why. I have a friend (also a student) who used to go out for lunch every single day. He would buy himself the newest electronic gadgets, and wanted to get a motorcycle. He lives at home. Then he was saying that he wants to buy a house. As soon as he had this goal in mind, he started thinking about how to save towards it. Motorcycle plans went out the window; he has a perfectly good car. He’s brown-bagging it to work. He’s put himself on a budget so that he can get to his goal that much faster.
If your kid has no reason to save (they’re living at home and emergencies are covered by you) and no reason to budget (few expenses, no financial goals) then they’re not going to. People tend to tell young folks that they’re too young to do things. That’s never true. Look back a few decades; most people my age were married and living on their own. Now it’s expected, encouraged, even, for us to prolong our adolescence. When my fiance proposed to me at 19, we were told we were too young to make that commitment and that it wouldn’t last, despite everything we’d been through together. When we went to buy the house, we were told we were too young to handle the responsibility. If I didn’t know any better, I would swear that older adults are TRYING to keep us ignorant of adult responsibilities. If I’m too young for all of this, then maybe I’m too young to care about finances!
Not all students are irresponsible binge drinkers. Teach your kids about financial responsibility, encourage them to have financial goals, and don’t treat them like unruly children unless they act like it.
June 2, 2010 at 11:11 am
College was sooo long ago, I can barely remember it
, but I do remember not having a credit card until I was out of school and working full time. I was lucky that my Dad’s company offered a scholarship program that covered everything except my locker fee ($10), but when it came to stuff like transporation, meals, school supplies, etc., I had to depend on my p/t waitress job to pay for them; it never even crossed my mind to ask my parents for money. The deal I had with my Mom was that I didn’t have to pay room & board as long as I was in school full time, so feeding me and keeping a roof over my head was always considered her contribution.
As Jenn pointed out, laptops/cells/designer coffee weren’t part of my everyday college lifestyle… I thought I was cool having an electric portable typewriter! LOL!
And Geoff… my husband said he onced signed up for a credit card just to get the free Maple Leafs blanket…. he’d have been better off with the chocolate bar
June 2, 2010 at 12:15 pm
Manda, where on earth did you get a mortgage for $250 a month?!? That’s amazing.
I got a free hat with my student credit card in university. I also began building an excellent credit history that has served me well since then. I always paid it off every month and twice used it as an EF, then had to quickly get a job to pay it off before I paid too much interest. I learned a lot about interest and EF’s and making realistic budgets so even though I did pay some interest, it was worth it because now I never do!
June 2, 2010 at 12:21 pm
One note: it can be a very useful tool to get a credit card to start building a credit history. I’m still angry that my $10,000 student loans (and their subsequent 100% payback) are not listed on my credit history. But my $500 student VISA is.
June 2, 2010 at 12:30 pm
@Amelia,
Living in Hamilton, in a fairly sketchy neighbourhood. We amortized over a long period at first, while we’re students, but once my guy graduates this winter we’ll be able to save and pay it off in three years once our five year term comes up. It’s far cheaper than rent, though, even with utilities, and we plan on staying here for a while.
I’m not saying we’re anything near the norm, but I do think that people underestimate us young ‘uns sometimes. I have a few friends in my age group who have purchased homes; one couple is renting out most of their home, so their mortgage pays itself!
June 2, 2010 at 1:06 pm
I purposely applied (and got) a credit card when I entered college (6 years ago) knowing it was easier to get one as a student with no income (all I needed was my student number and address, had no work history at all, worked for cash…) than it would be 2 years from then when I was no longer a student and unemployed lol.
I rarely used it for anything because I knew I only had X number of dollars to last the year I just wanted to start to build a credit history. So anything that got charged was paid in full. This helped when I got a mortgage at 21 because I had a few years of credit history already.
Credit cards have the purposes and are great tools when used correctly. Some people should never get them regardless whether they are a student or not. (like my older brother and he knows it lol)
June 2, 2010 at 1:08 pm
I agree that at 18 years old, you are legally an adult.
IF you raise your kid correctly, it is an adult in mind as well. Adults make mistakes. Don’t expect perfect because learning is ongoing in most people’s life.
You are worried about you college kid using a credit card? Have the credit card talk about paying balances and explain how you don’t intend to bail him/her out.
If you think you have a right to limit what your 18yo can do when you do not co-sign… (well you don’t as far as the cc goes) then limit your statement to recommending getting the credit during the last year of studies to ensure qualifying and an income soon after.
Treat a grown up like a grown up and respect their choices. If you subsidize their education and they fail courses because of their mistake. Have a talk and give him/her the chance to fix the problem (and he/she should come up with solutions… just like a grown up is supposed to do). If the problem does not get fixed, decide the level of subsidy you wish to continue.
If all college kids were screw ups, no one would graduate!
June 2, 2010 at 4:01 pm
i live in the states. my daughter had a credit card in high school; she was 18 years old with 4 months to graduate. since that date she has faithfully used and paid that card monthly. once she went to university, she shunned any further cards, figuring she had one, and that was enough. to this day it has been the same; 10 years later she carries the same card, with a 0% interest rate, a marvellous credit limit. and yes, she still charges a bit, and pays it all, every month. living in new york city gives her plenty of opportunity to abuse but she is well grounded in her financial wants vs needs. i’m proud of her! i’d say 99% of her friends are on the opposite side of the credit card utilization bandwagon…and i may be mistaken but i thought i had read the the us was going to introduce legislation to ban, once and for all, credit card companies from preying upon college-university age people. i agree, they are all adults. again, this may be their first experience with credit and while the cc company has no problem issuing that card and nice line of credit, it sure doesn’t do much to educate its clients!
June 2, 2010 at 7:59 pm
People often learn by making mistakes (at any age).
Consider this: A young adult that messes up a credit card with a $500-$1000 limit but resolves the problem whether by paying it off or being threatened by bill collectors has actually learned a very cheap lesson – provided the person actually learns from it. If they have a bad experience with a credit card early on, it may prevent them from a much costlier mistake, such as racking up a $5k or $10k card later on or buying a house or car they can’t afford.
Also, I would argue that someone who messes up a $500-$1000 card and then is BAILED OUT by their parents is very likely to continue to screw up.
A young adult that has the skills to not mess up one of these student cards in the first place will very likely be just fine anyway.
Having said all of that, I also agree with previous commenters in general that there is not really compelling reason that a student “needs” a credit card at all, not even to build their credit – I suppose *maybe* for booking hotel, etc. And I don’t agree with the very aggressive tactics used by credit card companies on campuses across the country. They are everywhere.
June 2, 2010 at 8:10 pm
I went to college out of country, and up on my return with 4 years of excellent credit in that foreign country, could not get a credit card at home, nor a car loan after my car was totaled by a careless driver. As a very responsible 20-something, it was frustrating to need a co-signer for a car loan and to have to write checks to my parents and use their credit cards to be able to buy anything online. Ultimately I found a bank that gave me a secured credit card and have built my credit from there.
If I could do it again, I’d have gotten a credit card in high school with a low limit to start making that credit history. A secured credit card would be ideal for a high school student, or even a college student, who is learning how to manage credit. It puts a very finite limit on how much trouble one can possibly get in to.
I agree with the above posters who take exception to broad statements about what high school and college students “should” and “shouldn’t” be able to get. There are plenty of responsible kids out there, and so many irresponsible adults that Gail and the TDDUP staff will never be out of a job! It’s never too late or early to learn financial responsibility.