Parents of college-bound students have a decision to make as offers stream in for their soon-to-depart teenagers.
Should they send their green freshmen off to campus armed with a debit or credit card to learn how to handle money? Or is it better to keep firm control through the Bank of Mom and Dad?
The "correct" answer will vary by family and personal preference.
The Credit Card Act that took effect 2½ years ago made it much harder for anyone under 21 to get a card. Gone are the days of card issuers racking up scads of new customers on campus by handing out free T-shirts or rewards points for spring break.
"In the old days, if you could fog a mirror could get a credit card," says Adam Levin, chairman and founder of Credit.com, a San Francisco-based company that provides information about credit products.
Under-21s can still obtain a credit card if they have a qualified co-signer or proof of sufficient income to repay the debt. And card issuers still market aggressively to college students, targeting them with pre-screened mail offers.
That makes parents, as the likeliest co-signers, more involved in the card-or-no-card decision.
Robyn Kahn Federman of Rochester, N.Y., says there's "no way" she'll let either of her two daughters have a credit card at such a financially tender age. Her daughter Sarah, who's 19 and about to start her second year of college, uses her PayPal card instead. That lets her mom fund the balance as well as see how spends her money.
"I don't think anything related to debt belongs in the hands of a college kid," says Federman, communications director of a marketing agency. "The vast majority are not experienced enough with money or cognizant enough of the risks."
Some students, though, have shown they're disciplined enough to have their own card on campus.
Scott Gamm, a junior at New York University's Stern School of Business, used his income from freelance work and blogging to obtain a Visa card and then an American Express card recently. He charges $200 or $300 on them monthly and pays every bill in full.
But he has friends who obtained three or four cards within a year and now have big debts to show for their "status symbols."
"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," says Gamm, 20.
With or without a credit card, payment options for students under 21 remain plentiful:
CREDIT CARD - SOLO
Credit card issuers have differing standards in determining whether an applicant under 21 has the ability to make payments. Some may say it's enough if he or she has a job and can afford the minimum monthly payment. That can take the decision out of Mom and Dad's hands.
Any student who gets a card should use it only for emergencies or otherwise pay it off immediately.
Gamm, who founded a personal finance website, HelpSaveMyDollars.com, agrees. "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," he says.
CREDIT CARD - CO-SIGNED
Co-signing should only be an option if the student can use a credit card responsibly, says Bill Hardekopf, who operates LowCards.com, a credit card comparison site. If so, a card with a very low limit is a good way to start building credit without undue risk.
Some students under 21 have upperclassmen, friends or siblings sign for them to avoid parental hassles. That could be a mistake for both sides. If the student can't pay, the co-signer is responsible for all the debt and the credit history of both parties will be affected.
A variant of this is to add a child as an authorized user to a parent's existing account. But if the card has a high credit limit there's the potential for greater unchecked spending.
SECURED CREDIT CARD
These cards are backed by prepaid deposits, making them more manageable as well as relatively easy to obtain. Cards that report to a credit agency can help build the student's credit score. When applying for a card, call and ask which agencies it reports to.
If you don't think your college kid is ready for a credit card, you can opt for a debit card linked to a checking account. The downside: These cards don't help build credit scores.
You should be able to set up email or text message alerts to be notified about any transaction that goes over a certain amount.
These cards can be readily found at pharmacies and convenience stores and bear the MasterCard, Visa or American Express logo. They work like debit cards but are not connected to checking accounts. Many can be registered online so users can review transactions and balances.
Although they are less risky in many ways, they don't come with the same protections as credit and debit cards if lost or stolen. They also can come with a wide variety of fees.
The American express prepaid card is one of the best options, according to Hardekopf, because it has fewer fees than most.
The bottom line for college students and their parents: Be very cautious before you graduate to a full-fledged credit card.
"A credit card can be a positive tool," says Levin. "It can be very helpful in building your credit but it can also be an instrument in your financial self-destruction."