Q: My daughter is going off to college next year, and I know she'll want her own credit card. How can I educate her about using it responsibly?
A: Freshmen arriving on college campuses this fall will undoubtedly encounter credit card marketers beckoning them to sign up. Some students don't realize that unless they're careful, they could be saddled with big debts and find their credit histories in tatters.
Before children leave for school, parents should discuss with them how to use credit cards wisely and the dangers of running up unmanageable balances.
They should also discuss which type of card will work the best, including the credit limit and interest rate, and whether a parent should be the primary borrower. The primary borrower receives the bills, which some parents might prefer, but there is a downside to that decision - the student won't be able to use that account to create a credit history.
Clearly, credit card use among college students is rising. Nellie Mae, the student loan agency, found that 78 percent of its undergraduate student customers in 2000 had at least one credit card, up from 67 percent in 1998. The study also showed students carried an average credit card debt of $2,748, up from an average of $1,879.
"You should tell your kid that you shouldn't spend money that you don't have. You should live within your means," said Jean Ann Fox, director of consumer protection for Consumer Federation of America. "If we don't teach kids that you need to earn your money, save your money and manage your money, then they are not going to enjoy success as an adult."
The first step is sizing up children's spending behavior and determining how much temptation they can handle. The crucial time is the first year in college, given intense peer pressure to splurge on status items, according to Robert Manning, a professor of humanities at the Rochester Institute of Technology and author of "Credit Card Nation."
He believes students should start with a low credit limit of $500. Parents should serve as the primary borrower, while the student is the co-signer.
"You then have a year to watch how the student spends money," he said. He added that if the child uses the card wisely, he or she should be able to get their own account.
Marie O'Malley, vice president of marketing for Nellie Mae, said parents should give their children the following advice:
1. Get only one credit card.
2. Keep your credit limit low.
3. Make full payments when you do charge, and if you can't, pay more than the minimum.
4. Don't take cash advances, because they are costly.
5. Always make payments on time. A missed payment hurts one's credit rating.
For some families, working together has proven to be a wise move. Jolene and Michael Crowley, from El Cajon, Calif., said they have been happy with the plan they set up with their daughter, Emily, now a senior at University of California, in Santa Barbara. The parents are the primary borrowers, while Emily is a co-signor for a Visa Card they ordered when she was a freshman.
The three worked out a monthly budget that includes rent and basic needs such as food and essential clothing. Books are not included. Any charges on the credit card are subtracted from the monthly budget. In addition, Emily must send receipts of all charges to her parents.
Emily said she has had to work to pay for extra clothing needs and entertaining, but she is grateful for the system she and her parents set up.
"I probably would have gotten my own credit card, and I wouldn't have been able to pay off the debt," she said.
On the Net:
Site for Robert Manning's book "Credit Card Nation": www.creditcardnation.com
Nellie Mae: Nelliemae.com
U.S. Public Interest Research Group's site on credit cards: www.truthaboutcredit.org