Survey: 40% Of Students With Credit Cards Were Never Taught How To Use Them Responsibly

Forty percent of students with credit cards said they were never taught about any important aspect of credit usage, either from parents or teachers. Over 37 percent of respondents were never taught how to use a credit card responsibly and 26.2 percent were never taught how to create a budget. That's a recipe for overspending.

As expected, 29 percent of respondents carried balances at least six out of the past twelve months. Half of respondents said they needed credit cards for basic necessities like groceries and gas, though this often implies overspending somewhere. If you do not have enough income to make a credit card feasible, you may have overspent on non-necessities — or you may have a different definition of necessity (Netflix and Starbucks?).

Seventeen percent of respondents didn't know how APR (annual percentage rate) and interest are calculated. Those students are in for a surprise when they discover the costs of carrying balances.

At least most students with credit cards understand credit scores and their importance. Over 82 percent of respondents knew what a credit score was, and 41.5 percent had checked their score in the last month. While one-third of respondents didn't know if their score had changed over the past year, 57 percent knew they had maintained or increased their score.

Parents, it's up to you to teach your children about credit before they leave the nest. A 2018 survey from the Council for Economic Education found that only one-third of states require that students take a personal finance class before graduating high school – and college is not the best environment to learn about responsible use of credit.

When the time is right, you can add your child as an authorized user on your account. He or she will get their own card on that account, but you remain responsible for the bills. Work out an agreement with your child on "limits" and when and how the card may be used — then monitor charges regularly.

Your child can start to build a positive credit history if your card issuer reports authorized users to the credit reporting agencies. Check with your credit card issuer before committing.

You can also co-sign for a card, which makes your child the primary account holder – but you're equally responsible for payments, and the card activity will show up on your credit report (both good and bad). Most major credit card issuers don't allow co-signed cards, but a few do (notably U.S. Bank, Wells Fargo, and Bank of America).

Another option is a secured credit card, which is backed by a deposit that usually corresponds to the credit limit. Your child will need some income to qualify. Again, to build your child's credit history, you'll have to make sure that the card issuer reports to the credit reporting agencies.

Would you hand your children power tools without basic operation and safety training? How about letting them drive your car? In both cases, people can do good things if the tools are used correctly and cause great harm if the tools are used incorrectly. Credit cards follow the same rule. Don't let your children find out about credit and compound interest the hard way.

Credit cards can be an effective way to manage money, improve credit, earn points, and travel with perks if used the right way. Benzinga's personal finance staff provides tips on using credit cards effectively.

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