FINANCE College credit can teach harsh lesson on debt

Freshmen should be prepared for a barrage of credit offers.
MILWAUKEE JOURNAL SENTINEL
One big test awaits this spring's high school graduates -- this one, outside the classroom.
The test involves money management. At age 18, students are adults in the eyes of marketers and the law. As college freshmen living away from home, they will be largely on their own to manage finances.
Expect them to arrive on campus to a hail of credit-card offers, warned Jean Ann Fox, consumer protection director at Consumer Federation of America in Washington, D.C.
"Banks will extend credit to someone with no visible source of income. The whole idea is to get them hooked," Fox says. "But they risk leaving school head over heels in debt and with a bad credit rating. That bad credit score will make it hard to get an apartment, a job or good rates for a loan."
Is your 18-year-old son or daughter ready for all that? Are you? Don't feel bad if your answer is no.
"The vast majority of students graduating from high school are ill-prepared to face even the basic challenges of financial management -- credit cards, car loans -- even how to budget," says Kim Kindschi, deputy executive vice president of Wisconsin Bankers Association in Madison.
In the cards
Today's choices invariably involve cards: automated teller machine (ATM) cards, debit cards, credit cards, stored-value cards, campus service cards, even so-called smart cards, which offer multiple financial options via a single computer chip or magnetic strip.
"The trend in college today is to have one card that does it all -- photo ID, meal ticket, library card, student activity card, banking, even financial aid," says Ron Pierce, executive director of the National Association of Campus Card Users in Troy, Ala. One-card systems are in use at 42 percent of U.S. colleges and universities, he estimates.
Most one-card systems, while convenient, versatile and wildly popular, aren't useful beyond the campus confines, says Jim Wysocky, program manager for the University of Wisconsin-Madison's Wiscard.
The most heavily marketed choice, however, is the credit card. Promoters laud its versatility, near-universal acceptance, utility in emergencies and value in establishing a record of financial responsibility.
"It allows you to pay off bills over time and helps you establish a credit record, so when you get out of school, you can rent an apartment or buy a car," says Catherine Pulley, senior manager of public relations at American Bankers Association in Washington, D.C.
"But remember, it's not magic money. You have to set limits and stick to them. That's part of what being a grown-up is all about. If you don't use credit right, it can haunt you for a long, long time," Pulley warns.
The options
The Consumer Federation's Fox doesn't think college underclassmen should be pushed to grow up so fast. She suggests that parents add the student's name to one of their own accounts.
"The bill comes to the parents, they write the check, see what it's been used for, and make sure it's paid on time," Fox says.
She dismisses the banking industry's suggestion that a college graduate without a credit card is at a disadvantage. "A credit card isn't a precious jewel, for pity's sake. If you can get one at 18, with no income and no prospects for any for four years, you'll have no trouble getting one at 21," Fox says.
Serving worried parents and their eager-to-spend offspring are stored-value cards such as Visa Buxx. You can charge purchases with it, but spending is limited to the sum deposited in the card's account. Since its August 2000 debut, Visa Buxx has been a college-age hit, says Rhonda Bentz, public affairs director for Visa USA Inc. in San Francisco.
"It's meant to accomplish two things: a tool for good money management skills that's not a credit product and something that's usable anywhere," Bentz says. Using a password, parents can track the account and replenish its funds online or using a toll-free phone number, she says.
Like stored-value cards, debit cards withdraw funds already provided through a bank account connection. Fox considers a debit card linked to a checking account as a logical first choice for personal finance novices.