Question of the week:My son started college this fall and was immediately inundated with credit card offers. How can I make sure he doesn't get in over his head? --Cliff C.
Dear Cliff,
Your son is part of an overwhelming trend on college campuses these days. According to a survey done this year by Nellie Mae, a national student loan provider, 83 percent of all undergraduates now have at least one card. Nearly half (47 percent) have four or more cards, and the average credit debt per student is just over $2,300. It's clear that the credit card companies have been very successful in their attempts to snag young customers.
Most parents aren't going to have much success in preventing the onslaught of credit card offers. Instead, the best strategy is to focus on helping you son use credit wisely. We recently asked parents in the Armchair Millionaire community for their advice on this issue. Here's some of what we heard:
"I obtained a credit card with a $500 limit for my high school daughter. I explained how credit works, how easy it is to overspend and the importance of good credit. She has handled her card very well, is now in college and still keeps her balance, if any, very low. Since she has been responsible the credit card company has since raised her limit, but she has not raised her spending." --Cathy
"I gave my son a $500 card. If he spends sensibly (essential or emergency purchases only), and deposits the balance owed each month into a savings account, I refill his card. If I see pizza or computer games, and no effort to save, then I only pay the minimum. In the last year I have only had to make two minimum payments, and currently his balance is zero. He has saved about $250 a month, which will hopefully knock a big dent in his student loan by the time he graduates." --Andrew B.
Credit cards for college students are a double-edged sword. Used properly, they can help a student build a good credit record by the time they graduate, as well as providing security for emergencies. Used improperly, they will land students in a pile of debt (along with a bad credit rating) right when they are starting out and can least afford it. My checklist will help you help your kids to be smart credit users.
The Armchair Millionaire Checklist for Steering Your Kids Clear of Credit Card Trouble
- Stick with one card. Students simply don't need a fistful of cards. A single, low-rate, low-limit card will give them all the benefits of credit and help them stay away from the pitfalls of multiple cards.
- Help them ask the right questions. Encourage them to pause before plunking down their plastic and ask themselves some important questions: Do I really need this item? Is this purchase so urgent that I can't wait to buy it? Will I be able to pay off my balance this month? If not, considering what I'll pay in interest charges, is this purchase still worth it?
- Walk your talk. All the lectures in the world will do little good if you do not use credit responsibly yourself. If wise spending and judicious use of credit are important to you, the chances are excellent that they will be to your children, too.
- Consider stored value cards. These are not credit cards, but can be very useful in teaching responsible credit use. They allow parents to add money to their child's card by making a transfer from their bank account, and then to review the purchases online. The Visa Buxx card is one example of these prepaid cards.
THE BOTTOM LINE: Spending decisions, especially if they involve the use of credit cards, can have far more impact over a lifetime than investing decisions. Credit cards are a fact of life, so help your kids get into the right credit card and spending habits as early as possible.
My two daughters each had Visa Buxx card issued by U.S. Bank and our experience with their customer service and online banking has been horrendous. I feel compelled to warn consumers against this card.
The short story is this:
In early August 2006, my daughter's U.S. Bank Visa Buxx card was fraudulently charged with five charges processed in Europe. The card had never left our possession in Santa Monica, California; indeed, the card was used in California on the same day. US Bank still has not fully credited my account for the full amount although we have cooperated with their every request. Also, they cut off my access to her account statement over a month ago and refuse to send me a hard copy of the statement.
I submitted written complaints to the the Bank president, the OCC, the California AG, and Visa USA. And they still can't get it right. As I said to the OCC, I am a lawyer with experience in dealing with these matters. An ordinary consumer with a 9 to 5 job and no legal training would be utterly at their mercy.
Two weeks ago, I was told there were ten fraudulent charges reported to the account. It took me half an hour to convince the CSR supervisor that only five charges were reported and that US Bank Visa Buxx somehow had generated duplicate charges. I still have not received credit for the fifth transaction that somehow the chargeback unit forgot to process.
As you probably know, Visa's "zero liability" policy is administered by the issuing bank, in this case U.S. Bank. In addition, the U.S. Bank customer service for Visa Buxx is outsourced to India, where they have no access to the actual account documents. The long story with all of the sordid details (including backdated envelopes, documents and forms promised but never forwarded, and requests for copies of documents ignored) is contained on my web site http://suehimmelrich.com.
Posted by: Sue Himmelrich | November 30, 2006 at 08:40 AM