My cousin had a credit card when she was 18. Today, as a successful 35 year old businesswoman, I bet she’s half done paying it off. That’s why I’m suspicious about students with credit cards. Granted, I wouldn’t trust an 18 year old with a Chia pet, let alone my bank account. But quite a few people suggest I’m wrong. As it turns out, there are some benefits:
“And this son, is the bank’s ownership papers over you.”
What Students Learn From Credit Cards
They learn, well…they learn to have a credit card. And not kill themselves with it. It’s kind of like knives and fire; unless your day job involves the circus, you probably wouldn’t let your kids near those.
But you can’t have your children go through life never cutting things, or roasting a marshmallow. At some point, they will have to handle something dangerous. And there are few things more dangerous than an 18 year old with a credit card.
If they’ve never had one before, they go bonkers the second they get it. They financially self-destruct from lack of experience. That’s why Arthur Turo, a practicing CPA, lets his two sons have credit cards:
“They have supplementary cards. But I make sure they know how to keep accounts. They must show me the receipts and statements at the end of the month, otherwise I take the card back.
When they buy something I make sure they pay back everything, the interest included. I want them to understand how much more they are really paying, when they buy on credit. If I ever have to clear their debt, I stop their allowance for two months.
I think the lesson has sunk in. They have never over-spent, and they will tell you they don’t even like buying on credit. Even when they can.”
“We maxed all your credit cards while you were at lunch. This debt counselling course is gonna be hands-on.”
Arthur’s opinions are shared by a few parents and youth counsellors, who feel that:
- Credit cards can be educational
- Handling credit requires experience
- It reduces the sense of financial dependence
We’ll add a fourth: That the right student credit cards are low-risk.
1. Credit cards can be educational
At some point, we’ll all have to deal with debt. It’s probably better if we’re taught to, than if we’re thrown off the deep end. Think of credit card debt as the little pink bicycle with training wheels; it’s a baby step, before we deal with whoppers like a mortgage.
Parent Andrea Huang gives her 19 year old daughter a supplementary card, for that exact reason:
“I think it’s important to learn about the difference between debit and credit, how interest is charged, and the various fees that banks levy. If as a parent you just sit down and talk about it to your children, it will go over their heads. It’s all numbers and very boring.
So a credit card, if you supervise the usage, is a hands-on learning tool.”
“The third time you have roll-over debt, those will be your fingers instead. I’d never lie to you son”
A youth counsellor, who only wanted to be known as Alex, adds:
“A lot of Poly or Uni students, that particular age group, will soon have or be able to get their own cards. Before they do that, they need to understand the terms and conditions, and how much hot soup they can possibly land in.
Parents should closely supervise their child’s use of the first credit card. Make sure their children understand everything before they apply for their own. Especially when and how to pay the bills. I have met a lot of students with credit cards, who don’t even understand how compounding interest works.”
2. Handling credit requires experience
“I have experience with credit alright. I’m 67 and I outpaced that loan shark by 200 meters, easy.”
Human beings aren’t wired to hold stuff that isn’t ours. Our lizard brains don’t comprehend it, for the same reason it can’t grasp why someone else’s popcorn in our paws isn’t ours to finish. That’s why managing credit is so hard: It’s handling money that isn’t really ours.
Alex says the maturity needs to be developed:
“We find that teens who get access to credit very suddenly are likely to get into debt. When they go window shopping, for example, they suddenly realize that ‘Eh, any of these things I can walk in and buy right now’.
Different people have different coping mechanisms. If someone is slowly introduced to the concept of credit, by parental supervision or student cards, they can develop the psychological insight required to manage it. But this maturity and restraint needs to be cultivated.“
Alex suggests that:
- Students compile receipts, so they can track the full extent of their spending
- First-time card users check their transaction history once a week
- Parents impose a cut-off (i.e. confiscate the card once the charges are past $X)
- Students be taught about billing cycles and repayment methods
3. It reduces the sense of financial dependence
“I wasn’t stealing dad’s money. I was exhibiting financial independence.”
According to Alex, the great benefit of students having credit cards is that:
“Students realize they can pay for things themselves. If there is some debt, like they spend $200 and then have to pay it back over two months, okay that’s bad. But on the other hand, they have a sense that they cleared their own debt.
It is a way to reduce the sense of financial dependence on their parents.”
4. Student credit cards are low-risk
Maybe you’re still worried about your teen getting a credit card. Or maybe you’re a student and want to get that first piece of plastic. Well there’s a bunch of low-risk options for you.
The Standard Chartered NUS card, for example, has a credit limit of $500 (typical for student cards). For first-time credit card users, that’s a good safety cap. You can’t walk into a store and buy an iPad with it. You can look up similar cards on SmartCredit.sg.
Do you think students should have credit cards? Comment and let us know!
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