My wife and I just sent our eldest child off to college this year. It certainly does represent a major transition in the parent-child relationship. We have done our best to raise her in a loving environment with a solid grounding in the Faith. But there really is a separation that occurs and we realize that as a young adult, it’s now time for her to be more responsible for making her own decisions.
Student Loans
It’s a rewarding thought that you’ve brought a child to the brink of adulthood, but it can be a little scary as well. Have we done all we could do? Has she really understood what the big issues are in life? We take comfort in Proverbs 22:6, “Train up a child in the way he should go, and when he is old he will not depart from it.”
Letting go can be tough, especially with the pitfalls society places in the path of our young adults. It’s so easy for young people to get caught up in crowds and behavior that can bring life-long damage, whether it’s alcohol, drug abuse, or getting involved sexually prior to marriage. As a parent, you want to keep a protective mantle over your children. But you realize that while you still have an ability to provide counsel, it’s not as simple as it used to be.
Money issues are another area that young adults begin to have to deal with, and they often fall prey to the whims of our society, making mistakes with consequences that affect them for years into the future. One of the financial problems that young adults face is the use of credit. I think of another verse from the book of Proverbs: “The borrower is the slave of the lender” (Prv 22:7).
Many young people take on student loans to obtain a college degree. This can be a reasonable approach. My basic rule of thumb for debt is that we shouldn’t use it unless it’s for an appreciating asset. In most cases, a college education provides greater flexibility in one’s career path as well as increased earning capacity. However, even student loans should be managed. Too often, students don’t link how much they borrow with their chosen major and expected earning capacity. As a result, many have the burden of repaying student loans for far longer than they should. When marriage and children come, the loan repayment becomes an added pressure that often leads to difficulty in meeting the family’s needs in a balanced way.
Debit or Credit?
But there is another form of debt that is becoming more and more prevalent on college campuses, and that is credit-card debt. According to student-lender Nellie Mae, a college senior leaves school with 5 credit cards and an average balance of nearly $3,000. A recent article in USA Today noted that several credit card companies have entered into “sponsorship” arrangements with universities in order to become the “exclusive” provider of credit card services on campus. Why would lenders promote credit cards to students who typically have no income? It’s pretty simple. The credit card companies realize that these young people will generate greater than average income once they leave school. They also understand that by establishing relationships with students early in their adult life, they have a good chance of maintaining that relationship well beyond the college years.
So what should you do if you’re a college student being bombarded with these offers or are a concerned parent who wants to help your child make good financial decisions? Here are some simple guidelines that will help you leave college financially free rather than in the bondage of consumer debt.
According to the USA Today article, many of the credit-card companies promoting cards on campus will use the offer of free pizza and drinks as an enticement for students to sign up. Unfortunately for those who do, that may be the most expensive slice of pizza they ever buy!
I understand that the more our society gravitates to electronic forms of payment, the more students will feel the “need” for a credit card. Let me offer this advice: between your freshman and junior years, start out with a “debit” card. When you use a debit card, your purchase is automatically deducted from your checking account. You get the benefit of electronic payment, but don’t run the risk of mismanaging credit and leaving college with lots of credit-card debt. Make sure to manage your checking account well. That means not spending more than you have (you’ll pay heavy fees if your payments “bounce”), reconciling your checkbook register to your statement every month, and not signing up for “overdraft protection,” which is just another expensive form of credit.
Establishing Credit
By late in your junior year, you may want to consider establishing a credit history. If you’ve handled your debit card and checking account well, a good way to do this is to obtain a “secured” credit card. You deposit money into a bank account and receive credit with a limit typically equal to the amount on deposit. If you fail to pay a bill, the money in the account may be used to pay it. Once you have developed a payment history of between twelve and eighteen months, you should be in a position to obtain an unsecured credit card. A great resource for comparing offers for secured cards is www.Bankrate.com.
While it should be a given, the purchases you make on credit cards need to be part of your spending plan (budget), and you need to pay your card off completely every month. If you find that you don’t have the discipline to manage the card in that way, cut the card up and go back to using your debit card or paying cash for your purchases.
By following these basics, you’ll avoid the pitfalls that so many young people are falling into today, and leave college with a clean financial slate. God bless you!
Phil Lenahan is President of Veritas Financial Ministries. If you have questions you would like Phil to address, please email them to [email protected]. You can also up for the free Veritas Financial Ministries E-Letter at www.veritasfinancialministries.
