Q My almost-21-year-old son is harping again about wanting a credit card of his own. I've been able to put him off and the legislation helped for a while, but he'll be able to get his card with or without me soon. I keep telling him he has a credit rating already: a $400 line of credit with our credit union. He also has student loan debt close to $30,000 (of which we are co-signers, and are paying off the interest monthly by gifting him the money).
Aside from the loan payment we still bail him out occasionally when he can't work enough hours or has been a bit unwise with the money and comes up short.
So, I'm not really big into him getting a card. At his age, it is still too easy to consider a Domino's craving an emergency. You get that card "to improve your credit rating," and before you know it you are in bankruptcy court. I need to know if I am harming him with my attitude or if I am correct. - CELIA
A Since this column is being published on July 4th, I'm going to lean toward embracing your son's declaration of financial independence. Try shifting your focus from sheltering him from credit cards to making sure he's financially literate.
I'm assuming your son's college career is near its end. I have a simple (some would say simplistic!) point of view about credit cards and college students. For most undergraduates a card isn't necessary in the early years. It's far better to learn how to manage money with a debit card and a budget.
Students eventually figure out how to avoid the debilitating cycle of eating pizza with all the toppings at the start of the semester and a bowl of Ramen noodles at the end of the term without taking on debt. I don't buy the argument that a student needs a card to build a credit history as an undergrad. Too many students are getting their college diploma and then dealing with hefty student loan debt burdens and the stress of meeting monthly credit card bills. Your initial caution is well warranted.
That said, it's a smart move in senior year for a student to get a credit card. The reason is very practical, although somewhat financially bizarre: It's much easier for a student to get a card while in college and not earning an income than it is after they graduate and are earning an income. Go figure. I'd take him off your card as an authorized user and eliminate the line of credit at the credit union.
Odds are your son won't end up in bankruptcy court; very few working people do compared with the size of the working-age population. But at some point he may join the millions of Americans who make a mistake with their credit cards and debt. That's OK, so long as the financial damage is limited. We learn from our mistakes and managing money is a skill. The key is to make sure he's financially literate about the workings of credit and finance. To me the right analogy is that financial literacy is like driver's ed. You learn the rules of the road. You gain some experience. And then the combination of financial literacy and cautious experience pays off over time.
Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to email@example.com.