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Dear Dollar Stretcher,
I just finished reading another article about credit card offers to college students that likened credit card company representatives to drug pushers and I agree.

The article suggested that if your child gets in over his head with a credit card the parent may want to bail him out once because of the harm it may cause when he needs a job, car loan or apartment. I can see the practicality of this suggestion but it would really bother me because I would be doing exactly what the credit company is counting on when they offer my child a credit card.

Is there no way to make the credit card companies responsible for the unreasonable risks they accept when they offer credit to college students? My son is 15, but I'm already concerned about this issue. I'm also concerned about our society as a whole.

Other parents should not feel forced to take on responsibilities they did not assume for the sake of their children and our children deserve some time to grow up and learn to deal responsibly with credit.
--Nancy

Surveys show that 80% of undergraduate students have at least one credit card in their own name without anyone else being responsible for payment. And almost every study shows that more students are carrying higher unpaid balances on their accounts each year. One report from Nelliemae.com indicates that the average balance in 2000 was over $2,700. That's a 46% increase from their 1998 survey.

High debt levels can force students to work extra hours to keep up with their bills. That cuts into study time. And some graduates are finding out that prospective employers can check credit histories before making a job offer. They'll avoid people who are having trouble keeping up with their debts.

While I appreciate Nancy's concern about the banks, they are being held accountable for taking 'unreasonable risks'. When they loan money unreasonably, a portion of that money isn't paid back. Those losses come directly out of profits.

Are the banks devious in assuming that some parents will bail out their children? Probably. But it's really just recognizing the truth. They'd be foolish to ignore reality.

Should they wait for our kids to grow up first? Perhaps. But if we trust our children to live on their own shouldn't we expect them to use a credit card wisely? And if we don't educate them they'll be just as vulnerable at age 25 as they are at 18. We all know 40 year olds who have credit card trouble.

Plus, the banks aren't alone in encouraging our kids to get credit. The Consumer Federation of America (CFA) accuses colleges of contributing to the problem by allowing card offers to be distributed on campus. In many cases, the colleges are being compensated by the card issuer.

Back to Nancy's question, there's probably not much that can be done by law. Sure it would be nice if banks were more careful about how much money they'd lend to younger borrowers. But, do we really want a law that sets a maximum credit limit up to a specific age? Would that be fair to the young person who's working and using credit responsibly?

Credit card education would be good. But for a parent the choice seems simple. We can wait for a law or take control of the situation and begin to train our children to use credit cards responsibly. With 1.2 million bankruptcies each year and money problems being the number one cause of divorce sending a financially uneducated child into adulthood is like sending an unarmed soldier into battle. They're bound to become a casualty.

Your child will learn a lot by watching you use your credit wisely. When they're teenagers, let them help you with your bills. Have them match your receipts to the statement. Show them what the interest charges are and what penalties are imposed for late payments, etc.

Most students don't realize that if they only pay the minimum it will take about 15 years to repay the money borrowed. And they'll repay $2 for every $1 that they borrowed.

Deciding when your child should get their first credit card is an important decision. You'll have greater control if your child gets their first card while they still live with you. That way you can review the bills with them and set limits on card usage. If they begin to carry a balance you can remind them that paying interest is like burning money. Explain that every $10 in interest is a pizza that they didn't get to enjoy!

It's important to teach them about the different types of credit available and the purposes for each. Long term debts (i.e. tuition) shouldn't be put on credit cards at 15%+ interest. That's what student loans are for. Credit cards should only be used for things that will be paid for in a very short time - a month or two.

Finally, and many parents won't like this, you need to demonstrate responsible credit card use in your own life. If you sweat out making the minimum payment each month, don't be surprised if your child does the same.

Nancy can try to shield her son. It's a natural instinct for all parents. But Junior might do better if she begins teaching him now. In three years she can lay the groundwork for a lifetime of responsible credit use.

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