Should Students Own a Credit Card? Can they properly Manage Debt?

This is a tricky question.  Owning a credit card can help to build the credit history needed to borrow money from creditors for future investments, like applying for a job or buying a house or a car. However, if a credit card is not used properly it could lead to debt trouble.  The decision depends on a few factors:

The student’s parents have taught responsible money management and card use. 

Whether it involves analyzing statements to understand how to pay a bill, or opening up a child’s own chequing account, a parent can help their child understand how to balance and maintain proper spending.  For example, if a parent opens a bank account for their child in high school, the child will learn responsible debit card use and how to properly balance a cheque book.  Its success will depend on how often a parent oversees the child’s account management.  The parent can advise their child on how to make conservative and responsible purchases at the time of consideration, and how purchases will affect their account balance.  Once the youth has a firm grasp of how to manage their account responsibly, the parent could consider using a credit card, as long as they continue to monitor their child’s spending on a regular basis.  Note:  It may be harder to oversee a student’s purchase behaviour once the student leaves the home for school.  Ultimately, proper credit card use will help students achieve a good credit score, which will open the doors for increased credit allowance and better interest rates.

More on Interest Rates and consumer Debt (read blog post “Interest Rate Increase will Hurt Canadians with non-mortgage debt”

If you can’t afford to pay for it in full, don’t buy it.

Firstly, the student will already need to have a good dose of discipline to make reasonable purchases; i.e. not buy something you don’t have the money in your bank to cover.  The student may not be earning a substantial income to cover big ticket items, or may not be earning an income at all.   So knowing your financial limits is crucial.

Secondly, if the student can afford to purchase something on credit, he or she should pay it off on time and with the cold hard cash that lies in their bank account.  The net bank account balance clearly shows the consequence of any purchase.   If they stick to this method, they will not need to take on a second credit card to pay off the first card’s debt.  This nasty practice traps many students into a lifetime of paying off credit cards.

At the end of the day, an established credit history coupled with a good credit score is important for students to succeed in life, IF they are taught responsible money management BEFORE acquiring a credit card.

It’s up to each parent to guide their child in becoming responsible and smart consumers before they leave the nest.

For consideration, here is what you will end up paying on a balance of $10,000 at a 29% interest rate if you only pay the minimum payment:

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