Students and credit cards

How does a student—someone without a job, with no credit history and no assets—get a credit card? Let’s face it, if you walked into a bank and told the manager you weren’t working but you were good for a loan, he’d laugh his head off. So why do students who are already carrying enough student debt to choke a horse qualify for revolving credit?

Lenders know that they can win a young future-professional client by issuing that elusive first credit card. After all, that credit card is a terrific way for a future responsible member of society to establish a credit history.

Used for this purpose, credit cards do have a place in a student’s life. Unfortunately, the mere granting and successful use of the first card signals the other lenders to pummel a student with more temptation to spend. And when all is said and done, students end up with debt they have no hope of ever paying off.

While banks may be to blame for their role in issuing credit cards irresponsibly, they aren’t to blame for our children’s inability to manage credit effectively. That’s our fault as parents. Since one-in-two of us carry a balance on our cards, it’s clear we haven’t figured it out ourselves. And we’re loath to accept our role in teaching our children when and how to use credit.

Perhaps the biggest “Aww com’on!” I hear from parents is when I suggest that if they lend their children money that they charge interest. Hundreds of parents have told me that they can’t do that. It’s immoral. It’s reprehensible. My response: Grow up! Baring religious restriction, your children are going to eventually have to figure out how the world of credit works. Would you rather a stranger did the teaching?

Students’ use of a credit card should be considered practice. No student without an income should have more than one credit card. And credit limits should be low—a limit of $250 to $500 is sufficient—so good repayment practices develop. More than that and credit issuers aren’t trying to teach our kids how to use credit responsibly. They’re tempting them to spend their future incomes before they’ve even begun to earn a living.

You can’t count on lenders not to lure your young adults onto the path to debt hell. You’ve got to accept that it’s your job to teach them about credit, how it works and the pitfalls. Ignoring the problem hasn’t made it go away.