Student bank accounts typically come with a lot of benefits. According to what type of account it is and how it is used, can be beneficial or troublesome. Debit cards can be beneficial because they teach students how to save and manage money. Credit cards however, can cause students to think they have money that is not there, and if they are used improperly, it can be detrimental to their credit rating and make it hard to finance in the future.
Debit cards can be very beneficial for students, and they are safer than credit cards.
“I think they were designed with a very specific purpose in mind, and I don’t see anything wrong with them,” said Barbara Caldwell, department chair of Accounting, Finance, and Economics. She went on to say, “I think it serves a very good purpose in that it gets students involved with how checking accounts [and]savings accounts work.”
The risk with checking and savings accounts are minimal. If there’s no money in the account, the card will be declined. There will be overdraft fees, but there isn’t much of a risk of debt if you can’t use the card.
“How often do you check what your account balance is before you go off and buy a movie ticket or whatever it is that you’re going to go do? That is what becomes critical,” said Caldwell.
“What students need is something that is simple, and a place they feel that their money is safe,” said Caldwell. “I do think that the student accounts that banks set up are a good option because the majority of students wouldn’t qualify to have a regular checking account or regular savings account.”
Opening a student checking or savings account can be beneficial, but student credit cards can be a bit more difficult. A lot of the time when students sign up for credit card accounts for the benefits, they only look at the positive aspects of it, but if the accounts are not used correctly, they can cause a lot of damage to someone’s credit rating, making it difficult for them to finance things in the future.
“Credit cards are very dangerous,” said Caldwell. The consumer can keep charging, and if the amount is not paid off in time, interest will be applied. If this continues each month, it is easy to slip into debt and decrease someone’s credit score. It takes a lot of time, and is difficult, to reverse this debt and increase the credit score.
“Credit card debt is very large in the United States,” said Caldwell.
In 2014, credit card debt caused a 57.1 billion net increase according to CardHub, a website used for comparing and reviewing credit cards.
Student credit card debt in 2013 was on average $499 according to creditcards.com. Also according to creditcards.com, the average U.S resident adult credit card debt balance is $3600.
One cause of credit card debt is misunderstanding of what truly comes with a credit card.
“A lot of people don’t truly understand what it means when your credit card has a 26% annual percentage rate associated with it,” said Caldwell.
Along with the annual percentage rate (APR), there are usually other fees to watch out for. Some of these are: annual fees, over-the-limit fees, cash advance fees, foreign transaction fees, set-up fees, late fees, etc., according to About Money, a branch off About.com that provides advice and information about finances.
“You have to be an informed consumer,” said Caldwell. When planning to open a credit card account, someone should read the fine print on the application, and decide if they are willing to take the risks with the benefits. If the card will be handled well is, “very dependent on the individual and what they’ve been taught,” Caldwell said.
