Student Credit Cards

As you help your child pack for College, should you be including a Credit Card?

As August rolls around and we enjoy the last few weeks of summer, we also start our Back to School shopping and preparations.  Mike and Jack will both be sending sons off to their first year of college in August.  My daughter Chelsey, who will be a junior in college this year, is heading to London for a semester abroad in September.  Many of our clients will be sending their children to college this fall as well, so student credit cards are something we should think about now.  

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My daughter, who attends college in Boston, has had a credit card for the past two years.  She has been very responsible with her credit card.  I helped her get a card with a very low credit limit: $250.  I pay the bill so the statement comes to me, which I like because I get to see exactly what she is purchasing each month.  Since the card is in her name she is building credit, even though I’m paying the bill.  

This year we have a new issue: Chelsey will be in London and she needs a new credit card.  The one she has now charges Foreign Transaction Fees.  I started doing a search for student credit cards that do not charge Foreign Transaction Fees, and I found a possibility in Kiplinger’s Magazine.  Capital One offers credit cards that don’t charge Foreign Transaction Fees, and they have a Student Rewards Credit Card.   Capital One has a good reputation for student and ‘beginner’ credit cards.  Chelsey needs to apply for the card, so we haven’t used it yet and I can’t recommend it yet, but it offers 1% cash back on all purchases and looks like a good deal. 



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Choosing the right card is important, but there is a bigger issue here.  Is your child responsible and mature enough for a credit card?  Will you pay the bill or do you expect them to pay the credit card bill?  (Keep in mind that if they pay the bill they need to make sure it’s paid on time, or else their credit will be negatively affected.)  In my experience, I prefer my child have a credit card that I help them choose and that I monitor.  I have friends whose children signed up for credit cards at college and ran up huge credit card bills because their parents were not involved in the process. 

Regardless of whether you want your child to have a credit card or not, I do recommend you speak to your teen about credit cards.  Many credit card companies market and heavily promote to teens on college campuses.  It is way too easy for college-aged children to fall into the ‘buy now, pay later’ trap and run up excessive debt on non-essential items.  It is important that you educate your teen about the benefits and potential hazards of credit cards.

If you are looking for a Student Credit Card, there are websites you can visit that compare various credit cards so you can find one that fits your child’s situation.  Make sure you get a credit card that does not charge an annual fee and teach your child to pay their credit card in full each month so that they do not pay interest.  A credit card that offers rewards should be considered. 

If you have any questions about this topic, please contact your Financial Strategist.

Written By: Marilee A. Falco, CFP®, ChFC®

The Bank of Mom

I was away for the weekend recently and when I came home I brought gifts for each of my three kids. Josie (2) and Lila (4) each got sneakers (not as boring a gift as it sounds - they LOVE shoes). Gage (6) got a pack of erasers and a book. Gage pawed happily over his gifts, then gave me a guilty look and said, “The girls only got one thing and I got two things.” They have an inherent want for things to be equal, as most siblings do. I began to explain that the shoes cost more than the erasers, so I had extra money for the book, and I could see that he wasn’t getting it. I thought for a moment and said, “Would you rather have four quarters or a dollar?” “Silly,” he said. “They’re the same.” “Well, your erasers and book are the same as a pair of shoes.” Oh.

Age six seems to be the first that I can start teaching about money with any kind of real meaning.  Lila is still too young, her response to the dollar vs. quarter question would be: The quarters, naturally, because there are more of them.

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I am a big fan of the envelope system, and Gage recently wanted to start an envelope for himself.  He has his eye on some sets of Legos, and he knows that (1) I won’t  just flat-out buy them for him and (2) he has to figure out a way to get the money to pay for the things he wants.  We sat down together and made a list of the sets he wants, then looked up the prices online.  We made graphs for each toy, broken down dollar-by-dollar.  Whenever he gets a dollar he carefully adds it to his envelope and fills in a little box on his graph.  When he has filled all the boxes for a particular toy he gives the money to me and together we buy the toy.  Then he starts working on saving for the next toy.

Gage has become very proactive in earning money.  We’ve made some deals, like if he ‘babysits’ his 2-year-old sister for ten minutes (so I can put laundry away or something) he gets a quarter.  He has a hard time sometimes, due to shyness of strangers, saying ‘excuse me’ when we’re in a crowded place.   I told him that if I heard him say ‘excuse me’ four times, he gets a quarter (just to get him over the shyness hump).  It worked too well, though, and I had to redefine this one when he started darting purposefully in front of strangers for a chance to excuse himself.  As an aside, Gage now knows the definition of the word ‘legitimate.’

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A nice side effect of this saving is that he’s doing a lot more math, and he’s eager to do it because it means something to him. He has a small tin that he keeps his quarters in, and when he has four he brings them to me to cash in for a dollar. When he has five dollars he cashes them in for a five-dollar bill, etc. He is constantly telling me things like, “I have thirteen dollars saved for my Legos, so I only need seventeen more.” And “I have twelve quarters; can I trade them for thee dollars?"

The biggest thing that I’m happy to be encouraging now is delayed gratification. A lot of poor spending habits stem from “I want this, and I want it now!” Learning to wait, and to prioritize, is a hugely important lesson. 

Written By: Jen Pieson, RP

Rule of 72

The Rule of 72 is a great mental short cut that allows us to estimate the effect of any Expected Rate of Return (ERR) required to double an investment, estimate the time period it would take to double an investment, and approximate the impact of inflation on future dollars or the impact of a rising lifestyle expense.

Here is how it works….  To determine how long it would take to double your investment, divide 72 by your expected rate of return.  Assume your ERR is 6% (72 divided by 6 = 12 years).  Your investment would take approximately 12 years to double.

          Formula:    72     ÷        ERR  =       Years Until Doubled

          4% ERR:   72     ÷        4       =       24 Years

          12% ERR: 72     ÷        12     =       6 Years

What if you needed to double your money in 5 years in order to meet a specific funding goal? 72 ÷ 5 years = an ERR of 14.4%. Wow! That might be a tough return in this market! How about doubling my funds in 8 years?

          Formula:    72     ÷        # of Years   =       Required ERR

          8 Years:     72     ÷             8            =       9%

          10 Years:   72     ÷            10           =       7.2%

The Rule of 72 also works on an inverse basis. Assume that you receive a fixed annuity payment of $400.  What if you wanted to estimate the impact of 3% inflation, or purchasing power, on your current payment?  72 ÷ 3 = 24 years.  What this means is that in 24 years your fixed annuity payment, which has not risen with inflation, will be worth half of what it is worth today.  While you will still receive $400, in 24 years that $400 would only buy $200 worth of goods in today’s dollars.  This may explain why your Advisor is so concerned about making sure your investment resources maintain some aspect for growth.



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The formula also works well for estimating the future cost of goals such as education. Assume the average cost of higher education tuition today is $12,000. When will this figure double?  Tuition is expected to grow on average 5% annually. Assume your child is currently 4 years old. 72/5= 14.4 years. Therefore you can expect that tuition for your 18 year old college freshman will be in the neighborhood of $24,000 per year. (Look out for higher increases in Fees, Books, Room and Board. They are not as scrutinized as Tuition and also do not qualify, for the most part, for gifting).

The Rule of 114. Want to know how long it would take to triple your investments? Divide your ERR into 114. Given an ERR of 7%, it would take approximately 16.3 years to triple your investment, 114 ÷ 7 = 16.3. If I had an opportunity to earn a 6% ERR, it would take me 19 years to triple my investment.

The Rule of 144. How about a rule of thumb to estimate how long it would take to quadruple your investment? Divide your ERR into 144. Given an ERR of 7%, it would take approximately 20.6 years to quadruple your investment, 144 ÷ 7 = 20.57 years.

Compound interest is a very powerful tool, sometimes jokingly referred to as the eighth wonder of the world.  The Rule of 72 is a guideline that provides with the ability to project the impact of compounding; the results are not exact…but close. Generally, the higher the ERR is the more inaccurate the rule, but not by much.  Mathematically, the rule of 69.3 is actually the most accurate, but not as divisible as 72, and therefore not as popular. Same goes for the Rule of 114 and 144.

Written By: Tom Gates, CFP®