Credit Cards and Your Child

As a parent, you've already tried to prep your college-aged child with some common financial sense. You remind them constantly to keep an eye on their spending and limit: credit card debit can haunt them forever. While training your child to have good money management skills is a challenge most parents struggle with on a daily basis, the process might get a little easier thanks to new federal regulations designed to keep young Americans out of debt.
These new federal regulations, which commenced in the fall, mandate that parents co-sign for their child's first credit card if they are under 21 or cannot demonstrate financial independence, such as proof of paying bills.
This leaves the decision of issuing the potentially toxic piece of plastic to you, the parent. The word potentially toxic is stressed because as a co-signer, if your child does not make payments, it can ruin both parties' credit scores.
So, is your child ready for a credit card? Do you feel that your child is responsible enough to deal with large sums of money? According to most parents, the answer is no. About 61 percent of parents surveyed in a July online poll administered by the National Endowment for Financial Education said they would not co-signing for their child's credit card, stating they didn't believe their child was financially responsible. About 16 percent said they were uncertain.
About 53,164 credit card accounts linked to agreements with colleges were opened in 2009, according to a recent statistics from the Federal Reserve. And the previous year, the average undergraduate owned about 4 credit cards and was $3,173 in credit card debt, according to the most recent statistics from student lender Sallie Mae.
These regulations were added to the CARD ACT, which Congress passed in February after the alarm of an increasing number of ruined credit scores and debt loans surfaced.
So what are your options?
Co-sign. Keep in mind if you do decide to do this, try making the card limit low, usually no more than $1,000. Limits cannot be changed without a co-signer’s approval.
Debit card. This route only allows your child to withdraw from available funds in their checking account. This option, however, will not aid in establishing a credit history.
Prepaid accounts. With this route, parents or students put only a certain amount of money on the card each week or month. This option is similar to a debit card as it only allows transactions if your child has sufficient remaining funds. Like a debit card, pre-paid accounts will not aid in establishing a credit history.
By-line:
This guest post is contributed by Olivia Coleman, who writes on the topics of online colleges and universities. She welcomes your comments at her email Id: olivia.coleman33 @gmail.com.







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