Now that it’s the end of July, many parents and college-bound kids are probably starting to make the final preparations for when those young adults head off to school. Often, that includes figuring out what type of account will be best for helping them manage their finances throughout the year.
However, the recent recession has changed the nation’s financial landscape and the old practices many parents relied on to help their kids gain a bit of financial independence are now simply no longer available to them. According to a report from the Associated Press, many parents used to allow their kids to open credit cards in their own names, but new federal laws passed in the last few years now prohibit them from doing so without an adult co-signer or the financial independence to afford an account on their own.
Further, many parents are simply now exercising more caution in their own lives when it comes to dealing with credit, and that trickles down to their kids, the report said. Many aren’t comfortable co-signing for their kids’ accounts or even making them authorized users on existing cards because young adults often don’t have the financial experience needed to properly manage these accounts.
“The more credit you have access to, especially at that young age, the higher the probability you’ll use that card to finance fancy clothes, restaurants and entertainment,” Scott Gamm, a 20-year-old student at New York University’s Stern School of Business and founder of the personal finance website HelpSaveMyDollars.com, told the news agency. “Students should view their credit card as a way to build strong credit via minor purchases here and there and not as a way to extend their spending habits.”
As a consequence, many are now turning to prepaid debit cards to give their kids a bit of financial flexibility when it comes to managing their money, the report said. But these cards come with their own difficulties, as many carry a number of fees that can take a significant chunk out of a user’s funds, and therefore have to be managed carefully.
Studies have shown that the typical college kid now graduates with several thousand dollars in debt spread across a few accounts, in addition to their student loan bills, which currently average more than $45,500 per person.