Should You Give Your College Kid A Debit Card Or Credit Card?

Financial cards and our kids form a delicate mix. Credit and debit cards, apart from offering financial options, test the character and habits of the owner. This test becomes exponentially harder for first time users without any financial background. If budgeting is an alien concept to an individual and they carry a money card, it could be a very hard crash course on money and finances.

As parents, we always have this desire to protect our kids from the very first time we lay our hands on them. We buy them sleeping cribs so they have their own safe sleeping place, vitamins to make them stronger, immunization shots to prevent sickness and so on. As they grow up, their needs evolve and as parents we adjust to still ensure they are safe and protected.

But as we show our love by ensuring a safe environment, it should also leave room for them to make mistakes and learn. Part of making sure they are safe is teaching them basic principles on things, such as finances, which they can build on as they grow up. This is possible if we as parents are also financially responsible. This is where they will look back to and lean on when faced with decisions they need to make on their own, like proper use of cards when they get to college.

Is it safer to give a debit or credit card to your college student?

When our kids set off for college, most of them would be on their own for a long time and finances will become an issue. As parents, we will constantly ask ourselves if they will be safe on their own. We want them to learn and explore the world but at the same time ensure that they will be safe and will always come back home for the holidays.

When it comes to their personal finance, we can only teach them so much until the time they pack-up for college. When they get there, they will experience a lot of firsts in life especially in handling money. They will be welcomed by an industry where, according to Statisticbrain.com, 76% of the students carry credit cards and where undergraduates carry an average of $3,173 in debt which could balloon to $20,000 when they graduate.

It would be easier if our kids are into sports and we use famous athletes to teach them about credit cards. But before this, we need to clearly understand the advantages and disadvantages of both credit and debit cards. Only then can we figure out what is best for college-bound child.

The advantage of using a debit card is the fact that it is tied up to an actual amount that you can oly use. If you only have $500 on the account, you can only use $500. If you have a credit card, there is that danger of charging more than the limit which carries fines and penalties and interest. On the other hand, a credit card becomes an important tool in building up your credit score. As you purchase using credit and make the payments, your credit score builds up.

In essence, debit cards are more controlled in terms of expense. You can only use up what you have which forces you to live within a budget. We are unknowingly teaching or kids already how important it is to budget. Credit cards, on the other hand are more flexible but it builds up items we would need after college like a credit score or points and rebates that we can use later on.

With this, we need to understand that it is not just about weighing the benefits of each card. It is not enough to know which can offer the best financial scenario for our kids in college. As parents, we need to assess our own children and know their level of maturity to discern that best card that can best serve their needs in college.

If we know that they are responsible enough to handle credit cards and that they understand how principal, interests and penalties work, it would be best to allow them to use a credit card. If they are still in the learning curve in terms of money matters, a debit card would be best. It makes them see the value of budgeting and in case of big purchases, they would need to talk to you first and it can be a good financial exercise. Thinking thoroughly about a purchase will serve them best.

Common financial mistakes of college students

No matter how much parents teach their kids about personal finance in preparation for college, there is never as great as a teacher as experience. Luckily for parents, we can learn from the past experiences of other college students who have gone through and learned from their financial decisions in college.

Marketing ploys to hand out credit cards – it used to be very easy to get a credit card for college students. It was even being given away with free meals in the popular pubs around the campus. But with recent restrictions in the new credit card Act, safeguards were set in motion to protect college kids from getting in debt.

One of which is the access ny which they are able to get credit cards. There are certain limitations, like age requirement or getting a co-signatory, that are in place to help ensure that they do not rack up debt by the minute.

One day millionaires – as soon as some of the college kids get their hands on a credit card, or even debit card, they spend so much that they do not have enough to tide them through the rest of the semester. Budgeting their financial resources and keeping an eye out for freebies can serve college students very well.

Minimum payment promise – this is a trap that most credit card users, not only college students, fall into. It is ok to pay for the minimum just to prevent late penalties and interest. But always make it a habit to pay off all your charges on time. If you can’t, pay off more than the minimum required payment. This saves you interest down the line and it pays off the amount much sooner.

Defining emergency loans – emergency loans is simply that, to be used for emergencies only. Getting a car does not merit an emergency loan. So does getting that high end gadget or going on a cruise for the semestral break. To top it off, some emergency loans are being given by private lenders that assess interest as early as day one.

Private lenders – there are private institutions that offer student loans. But they are very different from subsidized federal loans that can grant forbearance and at time, even deferment. What’s worse,  private lenders will ask you to start making payments towards your loans while you are still in school.  The idea is to determine the need and if it is unavoidable, have a payment plan to ensure that you never miss a payment. Arrange your classes in a way that you can get a job on days you are free so you can pay the loan faster.

Cash advance – there are dangers in making cash advances on your card. This carries a different set of charges which is sometimes on top of the regular charges being assessed on your card. Be very wary of making this move and never opt for it unless there is an emergency. And when you do, make sure to pay it off as quickly as possible.

There are a lot of ways college kids can get shiny-new plastic cards. As Nytimes.com article stated that there are cards aimed for college students. They just have to be wise enough to see the right card for them.  There are those that offer cash back for certain amounts and even 0% interest at specific times. The functionality of a card is best utilized by wisdom on when to use and the character to assess that need.

Leave a Comment