If you are a recent college graduate you probably have a lot of fond memories. The friends, the freedom, and quite possibly the damaged finances. Many of our nation’s college grads would probably attest to this formula:
Friends + Freedom = Damaged Finances.
College Students and Credit Cards
Many college graduates come out of college with an enormous amount of debt. I recently read an article about a student who was in the student union of his university and noticed a table where a certain company was offering a free campus t-shirt for anybody who signed up for a credit card.
Image from Wisconsin Radio Network
He thought it was the perfect way to get a free t-shirt since he was going to use the card only for emergencies. Unfortunately, our formula above took hold as the student’s financial “emergencies” became a weekly affair, and before he knew it, he had $15,000 in credit card debt. The hapless student was forced to drop out of school to get a job so that he could pay off his card. Not long after, his $27,000 student loan debt came due. The result? This person ended up stuck in a $15,000 a year dead end job while trying to pay off $42,000 in debt that was accumulating more interest every day.
You might think that this student’s story is an exception, but statistics say otherwise and show that it’s a common occurrence. 80% of all college students have credit card debt before ever getting a job. Because of this, it takes years before these students can financially benefit from the hard work they put in while getting an education. And if that statistic isn’t troubling enough, what about this one? 19% of all bankruptcy filings were made by college students.
How To Manage Debt: Credit Management Tips For College Students
As a parent, what should you do to make sure your child doesn’t go bankrupt before leaving college? If you watch Dave Ramsey, you’ll know that he preaches the avoidance of credit cards. He believes that credit cards are the enemy of financial independence and should be avoided at all costs; he also believes that the old idea that teaching our kids good financial habits by giving them a credit card is an irresponsible act. Whether you believe that or not, it’s definitely something to ponder.
Other financial experts say that the answer is as simple as the most basic economics:
- Teach your children not to spend money that they don’t have and if they follow that rule, they won’t get into trouble.
- Teach them how to develop financial strategies and make financial decisions without emotion.
- Teach them how to set up and follow a budget. They may want to learn about how to create a frugal household budget.
- Teach them how to build an emergency fund by encouraging them to put their savings into safe high interest savings accounts.
- Teach them that by saving and investing in stocks and bonds now, they will be able to retire earlier. Show them how to develop an investment plan.
Relay to them the many success stories of people who’ve admitted that the best thing they ever did for their overall financial well being was to remove the stress of debt in their life.
Contributor: Tim Parker from Elementary Finance.