For many students, college is their first taste of real independence, and that includes managing their finances on their own, as well. And while they may be getting an education to prepare them for their respective fields, most do not have an opportunity to learn how to handle their money effectively. In fact, college students are making more poor financial decisions than previous generations. According to a recent survey, fewer students are making budgets, tracking their spending or limiting credit card debt. The poor decisions they make in school can end up having serious ramifications after graduation in the form of poor credit and loads of debt.
One of the most dangerous behaviors students exhibit is their use of debit cards. Many young adults are sent off to school with a debit card, without having had one of their own before; instead, they just used their parents’ accounts. That issue can set them up for failure when it comes to managing their accounts on their own.
College and Debit Cards
On the surface, debit cards can seem like a safer option than credit cards. With a debit card, students cannot rack up thousands of dollars of debt; they are limited to the money they actually have in their account. Many millennials and young professionals switched to debit to rein in their spending and better manage their budgets.
However, debit cards carry unique risks compared to credit cards, such as the increased possibility of fraud and overspending.
Debit Cards and Fraud
People between the ages of 20 and 29 are more likely to be victims of fraud than any other age bracket, so college students are very vulnerable. Whether it is card skimmers at the gas station or having your card stolen during a night out, debit cards are easy targets for thieves. Especially on college campuses, where students make purchases on public Wifi or have unlocked dorm rooms, debit cards are commonly stolen with severe consequences.
If you use a credit card, and fraudulent purchases are made, it’s usually no big deal; once notified, the company deletes the purchases and issues a new card number, and you are no longer responsible for those charges. For debit cards, it can be much more complicated.
If your debit card has been stolen or unauthorized purchases made, you typically need to catch it and report it to your bank within two business days, or you may be liable for a certain percentage of the fraudulent purchases. If you do not report it within 60 days, you could end up losing out on the entire amount of money stolen. Since many college students are overwhelmed, they usually do not check their online statements daily, so unauthorized purchases can be missed and money lost. Because the debit card is linked to a checking account, a thief can completely drain the account before the student notices anything is wrong.
Debit Cards and Overspending
Debit cards are also linked to overspending by college students. Because of the ease and convenience of a debit card, it’s easy for people to forget that it’s linked to real money. A few trips to the bar or a restaurant and the entire account can be wiped out. And while credit card debt is never a good thing, debit cards compound overspending with overdraft fees and bounced check fines. College students are more likely to rack up fees for overages than any other age group, putting yet another financial burden in their paths.
Once the account is overdrawn, the student then faces issues like not being able to pay their rent, car insurance or buy essential supplies for class. Relying on a debit card can put them in a precarious financial position.
Debit Card Alternatives
Instead of a debit card, a secured credit card can be an excellent compromise. With a secured card, you put a certain amount of balance on the card, and that is your spending limit. For instance, if you deposit $500, you can only spend $500; if you go over that, your card will be denied until you make a payment. That feature can keep you from overspending and overdrawing on your checking account, while also giving you the added security of a credit card.
Additionally, because a secured credit card is not automatically linked to your bank account, if the card is stolen, the thief can only use the balance of the card, not your whole savings. While dealing with unauthorized purchases can still be a pain, a secured credit card can limit the damage.
The Final Word on Debit Cards
For college students, debit cards present unique risks and dangers when it comes to managing finances. If a credit card is not an option, it is important to take measures to protect your card and your identity. Only use the card on a secured internet connection, never share your PIN number and check your account online daily to look for fraudulent purchases or suspicious activity. If you notice anything that does not look right, report it immediately.
If it all possible, explore other options, like a credit card specifically designed for students or a secured credit card. These cards give you greater protection against fraud and can help you protect your bank account from thieves. When heading off to school, consider your options and take measures to protect yourself to keep your finances in good standing.
LendEDU is a content partner of the Centre Daily Times providing personal finance news, expert commentary and coverage.