Freshman Finance 101
WHAT IS THE NUMBER ONE MISTAKE COLLEGE FRESHMEN MAKE WITH THEIR FINANCES?
Falling for predatory credit card company offers that purposefully target freshmen.
WHY DO THEY TARGET FRESHMEN?
Quite simply, they are young and don't know any better. They know most students don't have disposable income so will likely max out cards. Unscrupulous creditors hire young people to get you to sign up, so that they identify with the age of the person trying to get them to sign up. They hang out in quads waiting. They even get kids to sign up by offering swag. This is not even expensive items. They can be Nerf miniature footballs, or battery operated mini fans. You’d be surprised how many kids are just willing to turn over their social security numbers to total strangers for a Nerf football.
WHAT ARE THE CONSEQUENCES OF KIDS FALLING FOR THIS PREDATORY PRACTICE?
These representatives don’t disclosing all of the pitfalls when they are signing the kids up. The cards they sign these kids up for have astronomical APR’s. The kid gets in trouble, but there is little to no consequence to the credit card company. The child can get into long time debt, which can damage credit score for years, and lessens ability to pay off student loans.
WHAT CAN PARENTS DO TO PROTECT THEIR FRESHMEN?
Warn your freshman about these practices. Instill in them the instinct to never sign up for financial services that approach you.
HOW CAN PARENTS HELP FRESHMEN ESTABLISH CREDIT?
Credit cards for freshmen is not necessarily a bad thing, as long as they understand how to use it and that they are signed up for the right card and services. It’s good to help establish their credit. You can actually sign up for one with them. Both of your names will be on the card. You’ll have access to the card and it’s usage. You can monitor how they are using it. Just make sure your kids are responsible because you don't want them being on your card to damage your credit.
WHAT KINDS OF CARDS SHOULD YOU GO FOR, AND HOW CAN THEY APPLY?
Applying for a card as a cosigner gets them the benefit of your long and good credit history and can qualify them for cards with low APR’s and other benefits like cash back, and points. The best choice is one that is with your established bank. Also, one that has some type of rewards or cash back.
HOW CAN PARENTS TEACH THEIR FRESHMAN TO BUDGET IN THE REAL WORLD?
Plan a budget. Have a joint debit card. Set up alerts to let you and your child know when finances are getting low so you do not over draft. Use mobile apps to save money like Mint.com. Mint automatically pulls all your financial information into one place, so you can finally get the entire picture. Add the accounts, cards and bills you’d like. See what you have and what you owe. Track your spending patterns, investments and more. Not only will you mitigate the chances of overspending, but also you can easily see where you can take advantage of opportunities to grow your profile.