Thirty years ago, it was unthinkable that a bank would give a credit card to an 18-year-old with no income. Graduating students were sometimes able to get credit cards but they usually had $500 spending limits – not $5,000. Today, students can fill out application forms that are practically pre-approved. Moreover, many credit card companies market their products to freshmen during university orientation weeks by offering them gifts – such as sweatshirts – if they apply for cards.
Middle- and upper-class students living at home and working part time are especially prone to developing what the industry calls “premature affluence”. Since they usually don’t have to pay for their living expenses, most of their income is used for discretionary purposes. This often leads to developing a taste for luxuries such as expensive coffee and clothing.
But when these young people move out to attend school, they suddenly find that their income barely covers their basic expenses – let alone luxuries.They don’t want to start living like a pauper, but their income barely covers the necessities of life. But they have credit cards and they can put luxuries on the credit cards and then make the minimum payments. They are able to go out and they are able to enjoy things.
The minimum payment system as “a big trap” that encourages consumers to hold on to debt to create profit for credit card companies.In my son’s case he didn’t even make it on campus. We went to our local bank to change his youth account to a regular account and left with a credit card that “came with the account.”
Parents you know your child’s money personality and therefore, you, not a bank, should determine if your 18 year old is mature enough for a credit card.
