Kids With Credit Cards
by Steve Diggs

You may expect me to take a hard line on this issue. There are financial advisors all over the board when it comes to kids and credit cards. Some are absolutely opposed under any circumstance, yet others promote the idea. While I'm somewhere between the two extremes -- I do have a definite lean towards the opposition side. If you've been to the No Debt No Sweat! Christian Money Management Seminar that I present in churches around the country -- this is going to sound familiar.

First, we have to realize that credit of all sorts (especially credit cards being pushed on young people) is big business. Americans are swamped with debt. Today the average credit card holder is carrying a balance of $4,400. Since the early 1990's household credit card debt has careened from less than $3,000 to a whooping $9,000! And, unfortunately, our kids are following in our footsteps. Today, the average college undergraduate is carrying a credit card balance of about $3,000!

Actually, the news for our college-aged kids is even worse. According to a study released in November 2003, the percentage of college students with credits cards has skyrocketed in the last five years from about 11% to over 70% today! Many of these young people are now carrying up to five cards. And, most disturbing of all is that lots of these young (otherwise, bright) people are using their student loan money to make their monthly credit card payments! Think about that. Just when a young person should be ready to launch into life with optimism and hopefulness -- she has to deal with creditors.

The other night I almost crawled through the phone after a telemarketer who had the gall to invade our home trying to get one of my kids to accept a credit card he was selling! Nothing upsets us more than when someone messes with our kids. Pushing credit (and the bondage that goes with it) onto untrained kids is next to criminal in my book!

But, it's not just happening over the phone. I was saddened to hear of a Christian university that allows credit card companies on-campus to sell their products. Talk about selling your birthright for a bowl of stew! These marketers set up tables in the student center loaded with tee shirts, coffee mugs, or some other equally valuable treasures -- and start signing up applicants. There's a reason for this. Studies have shown that people tend to have an affinity for their first credit card. They tend to keep that first card much longer than cards they get subsequently. So, it's important to target college kids and be the first company to put a card in their hands.

Fortunately, a number of colleges are beginning to wake up to this. Many of them believe that this practice works at cross-purposes with the education and life-skills they are trying to teach. There are fully 400-500 schools nationwide that have either banned, or are set to ban, these marketers from their campuses.

Before You Let "Joe College" Get His First Credit Card...

Now that I've told you how I feel about college kids with credit cards, let me admit the obvious: There are some of you who will simply disagree with my position on this issue. That's okay -- they're your kids. No one knows your kids like you do. If you feel like you can trust your college-bound student with a card, let me share a few suggestions on how to do it more responsibly:

1) Have a long talk. Discuss how credit cards work. Read the application together -- and, discuss the small print. This is a great time to teach one of the fundamental principals of adulthood: Never sign anything you don't fully understand. Help your son or daughter see what interest and penalty charges can do to a budget. Be fully aware of how many days you have each month to pay the bill without incurring those extra charges.

2) Place a spending limit on the card. You might be able to tie the amount of available credit to the amount in your child's checking or savings account. In any event, you may want to set a $500 or $1,000 spending limit on the card.

3) Review the billing records. Don't forget, you have a God-ordained mandate to invest yourself in your children's lives. Make it clear from the start that you expect regular reports on the card's usage. You might consider requiring that your son or daughter photocopy each month's invoice and send it to you. Does this mean you don't trust them? Sure it does! Think back, when you were their age, how much did you know about these things?

4) Pay every cent every month. If you do arm your student with plastic, at least make it clear that the first month he doesn't pay his bill in full -- the card gets destroyed! There's a reason for this. If your young person falls into the trap of making minimum payments -- he's hung. Bankrate.com computes that if a person makes just the minimum monthly payment on a $1,000 charge on a card that has an 18% interest rate, it will take more than 12 years to pay off that debt!

5) Have a clear understanding of what the card may be used for. I would suggest that you establish a written agreement listing what the card can be used for, and what it should not be used for.

6) Only one card. I know of no justifiable reason for a young person to have multiple accounts. It only adds to the confusion and temptation. One study showed that one fifth of all college students carry four or more credit cards. Folks, this is a disaster looking for a place to happen!

A Sensible Alternative: Consider a Debit Card Instead of a Credit Card.

Several years ago when Joshua was in his mid-teens I arranged with our bank for him to get a debit card. This has been a good experience for us, and it has helped Joshua manage his money.

Debit cards work very much like credit cards, with one great advantage: Instead of extending credit, a debit card drafts money straight out of your bank account as soon as you use it. We have found that debit cards are accepted most places that traditional credit cards can be used. While there are some advantages to credit cards, on balance, our family likes the debit card approach best.

Before I leave this, let me warn you that some experts voice concern about debit cards. According to a recent report on Fox News Channel, some banks are not fully disclosing the risks associated with debit cards. Consumers may have a potentially greater liability with debit cards than they do with credit cards. If someone fraudulently uses your debit card, present laws do not give consumers as much protection for speedy recovery as with credit cards. Many banks voluntarily make good on debit card losses, however it is the consumer's responsibility to fully understand his bank's debit card policy in full detail.

Also, remember, debit cards have some of the inherent weaknesses that credit cards have. For one thing, anytime you buy anything without using cash -- the pain is less. Whether you use a credit card, a debit card, or a check -- somehow it just doesn't feel as bad as pulling out the old billfold and cracking out some greenbacks. Studies show that when people use plastic they spend more money. Of course, merchants and the credit card industry like this -- but as for the consumer...

Remember the admonition: "Train up a child in the way he should go." This applies to things temporal as well as those that we perceive to be eternal. One of the best ways to bless a young person is to prepare her for a peaceful, bondage-free adulthood. Think of how much sweeter (and more spiritually productive) life would be if you had no credit card bills.

-Steve Diggs

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