Sending a child off to college is understandably a stressful time for many parents. It’s common—and completely normal—to worry about whether they can handle being on their own and if they have enough money to take care of themselves. After all, college can be expensive, and parents want to make sure their soon-to-be students are financially stable.
If you have a child who’s in or about to enter college, it’s important to remember that it’s okay for them to make mistakes—it’s all part of learning how to manage finances on their own.
Let’s go over some of the benefits of getting your child a credit card for college, what to consider as you explore your options, and how to get started.
Building a Credit History
It’s important for college students to learn how to manage money and build a good credit history, because once they graduate and start working they may need to buy a car or rent an apartment.
Renting an apartment usually requires having a good credit history to avoid paying a large deposit or needing a cosigner. This is also the case for most loans and revolving credit accounts. To help build credit, many parents give their kids credit cards when they head off to college so they can pay for emergencies or other unexpected expenses. However, without the proper knowledge and experience of managing a credit card, many students accrue large amounts of credit card debt.
Let’s take a look at how you can help your child build credit responsibly with a credit card.
Considering Adding Your Child as an Authorized User on Your Credit Card Account
One way to help your college student learn how to use credit cards is to make them an authorized user on one of your credit card accounts. You may want to consider doing this before they leave for college so they have time to practice making good purchasing decisions. Remember, you are ultimately responsible for their charges, so make sure you are both ready for the responsibility before adding them to your card.
Once your child is an authorized user, they’ll get their own card with a unique account number. This will make it easy to distinguish their charges from yours when you review the statement at the end of each month.
While adding your child as an authorized user is a quick and easy process, it’s important to discuss a few things with them first:
- Explain how credit card interest works and how important it is to pay their bill in full and on time each month.
- Set clear expectations. Let them know how much they may spend on the card and what types of purchases are allowed.
- Monitor their spending. Review their statement with them each month to make sure they’re following the guidelines you’ve set.
- Be prepared to help them out. If they make a mistake, talk with them about it and help them learn from it.
How much should my child spend each month?
Most credit cards allow you to set a spending limit for authorized users. Try starting with a smaller limit and see how it goes from there.
Reviewing the statement with your child each month gives you a chance to talk about their purchases and the decisions they made. If they know that their credit card charges are going to be scrutinized, it may help them resist impulse buys and unnecessary purchases.
You may also raise or lower the spending limit as needed. Once your child has learned to manage their spending responsibly, try giving them a little more leeway.
What should the credit card be used for?
Defining what the credit card can be used for will help your student make the right purchasing decisions. Set clear rules and expectations with your child about the types of expenses that are acceptable and the types that aren’t.
It’s important to be specific when talking to your child about credit card spending. For example, you may say that it’s okay to use the card for gas, groceries and school supplies, but not for clothes or entertainment.
Mistakes Happen
Be flexible and understanding if your child makes a mistake with their credit card. Talk to them about it and help them learn from it. It’s possible that you may need to lower the limit or take the card away for a while—but keep in mind the goal is to help them become a responsible adult. The sooner you start teaching your child about finances, the better. Good financial habits will set them up for success in college and beyond.
Quick Tips for Parents
Here are a few key takeaways to keep in mind as you explore getting your child a credit card for college:
- Talk to your child about money and credit cards before they leave for college. Work with them on how to budget, save money and avoid debt.
- Consider giving them a monthly allowance or a credit card with a spending limit.
- Check in with them regularly to see how they’re doing financially.
- Be prepared to help them if they need it, but also encourage them to learn from their mistakes.
Don’t forget that college is a time for learning and growing. Be patient and supportive, and your child will eventually get the hang of it.
