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Subject:  Re: Credit Card for College Freshman Date:  5/29/2007  3:08 PM
Author:  VikingErik Number:  253750 of 312188

I feel the best way for a young adult to learn personal financial management is to open and use a standard checking account rather than a credit card. A checking account teaches one to have money and then spend it. A CC teaches the reverse.

A checking account opened jointly with a parent allows the parent to track activity and make deposits for the student, without the risk of overspending that a CC allows. My parents did that for me - my mom had me open a checking account before going away to college. It was a joint account so my mom could make deposits for me (only did so once). And I didn't learn to spend money I didn't have with a CC. Well, I did later, but that was my own fault, not my parents'. My brother and sister followed similar tracks and are both also fairly smart with money. Neither carries CC debt now.

I managed my own money all through college, starting with that checking account and adding a CC shortly later. My college case is a bit unusual though -- my college (Stevens Tech) has a co-op work program where you spend every other semester working an internship. So after freshman year, students make real money instead of relying on parental allowance, and that's how I paid for college and my own spending money. I graduated with only about $12,000 in student loans and $3,000 in CC debt (mostly from computer upgrades and other entertainment), and paid everything off within two years.

It's natural for a parent to worry about "emergencies", but the reality was that in five years of college, I never had a single time when I needed a CC and would have been in trouble without one. CCs are certainly more convenient for online purchases -- but maybe that convenience isn't appropriate for a young college kid.

"I haven't got money for pizza tonight" is easy to disguise when a CC line of credit is available. It's much more obvious when the ATM says $0 and won't give you cash. If that happens, it's a lesson that few kids will forget. I speak from experience. :)

To answer this from bingocards:

(Somebody explain to me why "Retired $25,000 worth of student loans in three years" is worth less than "Kept a Visa open for 3 years and charged a haircut or movie rental on it every month". Ahh, the unfairness of it all.)

Maybe you're asking rhetorically, but there is an earnest answer. Historical data. The FICO system sees that future reliability is predicted better by past regular Visa use than by past rapid student loan payoff. Many technology and business degree holders have blown away their student loans with a six figure income, then overspent their CCs on vacations and home decorating. The FICO system might see you as such a potential risk until you generate more data to show them that you do handle CCs responsibly.

- Erik

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