Credit Cards 101: Helping Students Manage Easy Plastic
With 64 percent of students holding credit cards, heavy debt is a concern
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Another pitfall is paying only the minimum required. "Only $10 a month" may sound tempting, but "you're not doing yourself any favor [by paying such a small amount]," she says. "You're making the bank rich and putting yourself in debt potentially for decades if you continue making only minimum payments."
A typical balance on a major credit card these days, she says, is $1,900. Assuming an interest rate of 18 percent and a minimum payment of 2 percent, it would take 23 years and three months to pay off paying only the monthly minimum. And that assumes the user doesn't charge another penny for the next 23 years. "When you pay that $1,900 back, you will be paying - in addition to the $1,900 you originally spent - $4,790 in interest," she says.
Some kids pay attention to such arguments, and others are swayed by their peers. Bob and Melanie Mason of Saratoga Springs, N.Y., have learned that from sending four children to college. "Two of our kids charged no more than they could afford to pay off each month and mainly used their cards for emergencies and travel," Mrs. Mason says.
The others ran into some problems, although their parents had talked with them about the dangers of getting into debt. She wishes her children had been able to take personal finance classes in junior and senior high school.
Boas understands that it's not always easy for parents to talk with their kids about money. She remembers a letter from a young woman thanking her for the opportunity to talk with one of the CCCS counselors. "She said, 'I got all the advice without the lecture my father would have given me.'"
Such advice is available at all agencies that are members of the National Foundation for Consumer Credit. Call (800) 388-2227 or access the group's site on the Internet at http://www.nfcc.org to locate the nearest office.
For $1, students can obtain a copy of "College Students and Credit." Write to: Bankcard Holders Of America, 524 Branch Drive, Salem, VA 24153.
With Money Management, Practice Makes Perfect
'The wrong place for kids to learn to manage a credit card is in the dorm with their peers," says Suzanne Boas of Atlanta's Consumer Credit Counseling Service. "I think we're unrealistic to give them their first checking account two weeks before they go off to college and expect they're going to manage their money effectively.''
She urges parents to begin money management training as soon as children can handle it. Even if it's a $2 a week allowance at eight years old, youngsters "need to learn by experience that you can spend a dollar only one time. And you've got to make choices and establish the difference between what you want and what you really need.''
These lessons may not always be trouble-free - for parent or child. But that's OK, she says. "It's important for children to have the opportunity to fail while the consequences are pretty small. If you get a quarterly clothing allowance when you're 13 or 14 and you blow it, your parents are going to see that you've got a coat.'' But they're not going to buy the needed underwear when the money was spent on the latest fads, so the lesson is learned.
"Controlling yourself financially is the same as controlling your weight,'' Ms. Boas says. "None of us can do without food, and few of us in this day and age can operate without credit. So kids really need to learn how to control it.''
But they don't learn if they have to go to their parents with a request for money every time they want something. "Allow them to learn. Money management is one of those things we learn from experience.''
Alternatives To Credit Cards
* Debit Cards
* Prepaid long-distance calling calls
* Sending e-mail instead of making long-distance calls
* Checking account in which parents deposit monthly funds