Student Credit Cards

Gone are the days when having a credit card meant that you are already financially secure and earning a regularly income in order to meet the credit card debt incurred each month. With high levels of competitiveness amongst financial institutions and credit card issuers, it has become the norm for these financial institutions to target students as potential credit card users. This is in anticipation that, if the student uses the financial institutions’ credit cards early enough in their lives, and are happy with the outcomes and services provided, then these students will continue to loyally stay with the credit card brand and credit card issuer that they started with.

This, of course, has some merit, but the question is whether, by providing student credit cards, there is a risk that we are opening that proverbial can of worms.

There are people who are of the view that providing students with credit cards is not necessarily a good practice. Their rationale is that this may put students at risk of being indebted beyond their means, and in some instances, this argument does carry weight.However, this needs to be balanced against the clear benefits that students will derive from having credit cards of their own. Key in the list of advantages is the fact that these student credit cards usually have very low limits and, therefore, the degree of indebtedness is limited. This then provides students with a platform to learn fiscal responsibility and to take charge of their finances, as a prelude to their understanding of financial commitments when they become full-fledged members of the workforce.

Before these cards are issued and are accepted by students, they should be provided with an understanding of how it works. By managing their fiscal responsibilities well, these students are then able to build their own credit history by proper use of these student credit cards. Building strong financial credibility will go a long way and what is important is to emphasize that repayments must be prompt whenever the credit card is used. Students must understand how credit card companies charge interest on outstanding credit card balances.

In the longer term, if properly managed, good financial credibility means that such students, upon graduation and employment, will be able to easily rent accommodation, purchase vehicles and even apply for jobs. It must also be remembered that by providing these students with financial autonomy, it will allow them to take that first step to transition from being an adolescent to becoming an adult.

When students are issued credit cards, emphasis should be on the fact that such available credit should only be used when emergencies arise and there is a need to access cash immediately. They must be made to understand that emergencies do not comprise using the credit card at a sale, or to go out drinking or clubbing with friends. The availability of such credit may also serve students who come from financially difficult backgrounds, as they can use the facility to assist them in the course of their education and cover some basic costs, such as the purchase of books and the use of facilities that require payment. In fact, this will enable them to do so without breaking stride, because of the financial freedom that credit cards can provide.

As with everything in life, there are risks. For student credit cards, the risks are financial in nature and the biggest risk is clearly the possibility that the students are not able to manage the financial responsibility that is thrust upon them by the provision of credit card facilities. If not checked early, or not properly managed, this can have long-term repercussions on the student’s credit history.

The responsibility that comes with credit card ownership is clear, and bearing in mind that students more than most, are in a position to learn healthy tips and rules about financial management, this is a wonderful opportunity to provide them with an education about credit card responsibility, and fiscal responsibility in general.

It should actually become part of school or college curriculum to educate youngsters about financial management. In many countries in the world, specialists are creating programs to teach children about financial management, investments, credit card usage and about how to grow their financial resources in the longer term.

For students interested in applying for and using student credit cards, there should be the pre-requisite of exposure to financial training in some form, even if it is specifically about the credit card and the financial responsibilities that come with it. After all, a few minutes with an educated financial counselor can determine the difference between financial freedom and fiscal indebtedness for every individual.