Vinesh Mehra’s daughter, Akanksha, will be starting college soon, moving to a new city for her four-year engineering course. Having saved diligently to cover her living expenses, Mehra is hesitant to give in to her request for a credit card. He fears it may encourage overspending as college students often struggle with financial discipline, and he would ultimately have to repay any debt that she incurs. What should he do?Vinesh Mehra’s concerns about youngsters misusing credit cards and incurring high debt are valid. However, he must recognise that learning to manage cash flow early in life is crucial. If his daughter is not taught financial discipline now, she may struggle later. Therefore, this initial phase of financial independence should be seen as an opportunity to instill responsible money management habits in her.

It is essential that Mehra educate his daughter on the basic purpose of having a credit card; it is essentially a loan that must be repaid on time. Failure to do so can result in steep penalties and high interest rates of 30-40% a year. She should also understand about 30-40 days of interest-free period and how to use it wisely. Moreover, she needs to be informed about her credit history and its long-term impact on her financial future. Beyond financial freedom, having a credit card will help Akanksha learn to manage her own finances. The monthly statement will provide her with a clear picture of credit usage and spending habits. To ensure responsible usage, Mehra must establish strict spending limits and enforce them with clear penalties for overspending. He should also caution her against the dangers of overspending, paying only the minimum amount due, and making purchases solely to maximise the rewards offered by credit card issuers.

As a parent, he must bear in mind that student credit cards are meant to be stepping stones to building a good credit history. Therefore, it is critical that he constantly guides her to achieve financial independence.

Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.