Teens need to think more than ever about money this year as they head back to school. How can they manage their money the right way at college? How can they learn to spend wisely while still in high school? "Good Morning America" financial contributor Mellody Hobson has a money boot camp for you and your kids.
In the past, Hobson says, she has been reluctant to advise parents to get their kids a credit card, because they can be quite dangerous in the hands of young adults. A recent study by Sallie Mae, the college student loan company, shows that 84 percent of undergraduates have credit cards and that, by graduation, seniors in the study averaged more than $4,000 in credit card debt.
Hobson used to recommend debit cards instead, because you can't spend more than is in your bank account. But now, because there's a new law going into effect that will require parents to co-sign for children under 21, she has had a change of heart. A credit card will help your children learn how to spend responsibly, she believes, and help them build their own good credit history.
There are hundreds of cards out there, Hobson says, so check out Web sites like creditcard.com or bankrate.com, and find a credit card that has a low limit, a low interest rate and no annual fee. One card she likes is the Chase Freedom MasterCard. It has no annual fee, and you can set a limit of a few hundred dollars, so your child can't get into trouble.
Hobson says it's important to know what to look for when you pick an account. According to the American Bankers Association, more than half of the large banks have bank accounts for students that are free or discounted. Try to pick a bank for your college student that has a low minimum balance, no fees, online banking and an excellent interest rate. If you can, make sure the bank is located on campus, if your children are heading off to college. This will ensure that your kids do not pay excessive ATM fees and that they have easy access to their money at any time.
Hobson recommends these accounts:
Schwab High Yield Investor Checking This is a completely online account, so there are no branch locations. Kiplinger's Personal Finance rated it the best checking account out there. The account has no minimum balance, no ATM fees or any other fees. If you use another bank's ATM's, Schwab Bank will fully reimburse you for any fees that you may be charged. You get a debit card, checks and online bill pay. The interest rate on the checking account is also good, at 0.75 percent.
Bank of America Campus Edge Checking This account has no fees or minimum balance, and it only takes $25 to open an account. You also get one free pass on your first overdraft, and you have access to 18,000 ATM's.
PayPal Debit Card Account PayPal also has a cool new account geared for teens and young adults. Parents put money into a PayPal account that a teen can access online or through a debit card. If your teen tries to charge more than the amount in his or her account, the charge will be declined, and there are no overdraft fees. If you need to add more money, parents can simply send a text to PayPal authorizing an increase, or they can do it online.