Credit Cards 101: A Primer for Parents of the College-Bound

Most of us believe that tuition and room-and-board payments are the most arduous part of this parental college journey. But financial pitfalls abound, and discretionary expenses — from the cost of books to the siren song of credit cards — mean that parents must capture some teachable moments now, before they unload Junior and his stereo equipment at the doors of his dorm.

Perhaps the most important lesson concerns credit cards. From the moment they arrive on campus, students encounter a landmine of credit card offers. It's important for parents to know that, although it used to be required that parents co-sign credit card applications, that is no longer the case. Perhaps because of this, more and more kids are getting into financial trouble.

According to Nellie Mae and a 2002 report from the National Center for Education Statistics, based on 1999 - 2000 data, 83% of undergraduates have at least one credit card and 37.5% of graduating seniors have three or more cards. Over 44% of undergraduates carry a credit card balance. The average balance is over $3,000. Frighteningly, of undergraduates who carry a balance, 10% have balances of over $7,000.

These startling statistics can be a starting point for a pre-college financial discussion with your children. Here are some other ideas of what you can do to help them make good financial decisions when they're away from home:

1. Sit down with your child and figure out what expenses they'll incur and how much money they'll have, either from their own earnings or from what you're planning to give them. Be realistic. If you've been to college, try to remember those late night pizzas and formal dresses for sorority dances. If their expenses will exceed the money they have in their bank accounts, show them how they might either have to cut back on their spending or get a job.

2. Ask them to share their definitions of the terms "need" and "want." Discuss your viewpoint on the subject. Your opinions may differ, but it will open up dialogue and allow you to find out how they think in terms of money and expenses. This might be a good time to explain the term "afford."

3. Help them create a budget, taking into account all the things you learned in items 1 and 2.

4. Give them a credit card primer. Talk about smart spending (see item 2 above) and let them know what they can and can't use a credit card for. Though you can't keep them from applying for cards once they get to school, there are still some ways you can help them avoid the lure of the credit card representatives once they get there:

Sign up for a credit card together with the card in the child's name and yourself as the co-applicant. Although you'll both be responsible for the charges, as co-applicant you'll receive monthly statements, allowing you to keep tabs on your student's spending.

Have your child become an authorized user of the credit card you currently have. You'll know exactly when and where charges are being made. Remember, though, that you'll be responsible for all the charges.

Consider a pre-paid, reloadable card with specific limits or a student card with a minimal credit limit.

For many kids, college is the first real chance to learn some of life's essential financial management skills. Talk to them now so they'll begin college with the fiscal savvy to make smart, mature decisions.

Contact your Johnson Bank personal banker for more information.

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