November 2002

A check on credit cards and checking

"Watch out for credit cards," says Tesia Poponyak, a wise, self-supporting senior at UC Davis. "Students look at them as free money. I don't use them anymore."

Surveys validate Tesia's warning. According to a 2001 report by a major financial institution, students nationwide carry an average of $2,327 in credit-card debt. Fifty-four percent of freshmen and 92 percent of sophomores own at least one credit card. Almost half the card owners have four cards.

What's a parent to do? Students need access to money, and they can't keep cash. At the same time, many have little or no experience with credit or banking. According to one banker in Davis, this can lead not only to shocking credit-card debt, but also to serious errors with checking accounts. Student who fail to track their balance can wind up paying overdraft penalties at $10 to 30 each. If they continue along this path, the students can be reported to ChexSystems and denied checking privileges for five years.

Even the student who manages his or her checkbook wisely eventually has to establish a credit record, which usually means getting a credit card.

UC Davis helps educate students on the wise use of credit and curbs aggressive marketing of credit cards on campus. Vendors can't offer giveaways such as T-shirts to encourage applications, and they're required to distribute a campus brochure with cautions and tips about credit-card use.

Parents can help by asking students how their accounts are going or by establishing a presence through co-signing on a checking account and co-owning a credit card. When your student needs to establish independent credit, seek out a company that allows him or her to set limits on the card or to secure it with a savings account.

A little parental attention now may save a lot of heartache later.

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